Colgate-Palmolive Co

NYSE:CL

Earnings Call Analysis

Growing Margins Despite Inflation Pressures

The company has faced significant inflation, particularly in agricultural inputs impacting its Hill's business, alongside shifts in other commodities like resins and oils softening a bit. Despite these pressures, integral strategies such as robust product innovation, careful cost management, and revenue growth management (RGM) have led to a total margin improvement of over 300 basis points for the quarter. Looking ahead, they anticipate the current trend of raw material costs to persist to year-end. As the company navigates a volatile energy market and specialty material costs, their adept handling of productivity and pricing strategies has more than offset raw material expenses, resulting in an impressive 140 basis point increase in gross profit year-over-year. Leadership is confident in sustaining high margins through potential easing of costs and ongoing high-end innovation.

Robust Quarter Performance and Optimistic Outlook

Investors will find the company's recent quarterly performance commendable, delivering strong growth in both top and bottom lines. Their ability to grow organically across all divisions and categories with a mix of volume and pricing strategies points to an effective overall approach. The company's proactive initiatives in productivity and cost containment combined with growth funding have improved margins significantly, allowing double-digit operating profit growth and a 23% increase in advertising. As a value investor, the raised outlook for 2023, despite foreign exchange headwinds and higher interest rates, signals solid confidence in their strategic execution and future growth potential.

Strategic Investment and Marketing Efficiency

A key takeaway for investors is the company's focus on return on investment (ROI) rather than advertising as a percentage of sales. This strategic choice has allowed them to grow market shares worldwide in targeted categories, improving their P&L performance. Continuous investment is anticipated as they see positive ROI in their initiatives, assuring investors of sustained growth momentum.

Market Volume Dynamics and Margin Focus

From a market perspective, the general volume in relevant categories is down by around 2% to 3%, attributed to aggressive pricing strategies in the past quarters. With expectations of a moderation in pricing and sequential volume improvement, a shift towards more volume-driven organic growth is on the horizon, suggesting a potential enhancement in operational efficiency. Despite geographical unpredictability, management's focus on leveraging P&L levers for margin expansion remains firm. This is translated into a disciplined approach towards operating and gross margins and a positive outlook for margin expansion going forward.

Selective Advertising Spend and Profitable Market Shares

The bulk of advertising increase is channelled towards the core North American oral care business, which continues to receive substantial support. The strategic approach entails improving promotion cadence while simultaneously striving for profitable share rather than merely bidding for market share. The goal is to achieve sustainable share growth and the intention is to keep backing key sectors, including the skin health business which is experiencing double-digit growth outside China.

Foreign Exchange and Flexibility in P&L Management

Despite the unfavorable movement in foreign exchange, the organization seems well-prepared with effective levers within their P&L for price adjustments and coping with currency volatility. This readiness, combined with enhanced forecast accuracy and growth funding initiatives, enhances the company's resilience against such economic headwinds and preserves its ability to maintain flexibility.

Productivity Initiatives and Cost Mitigation

The company has been successful in driving productivity, which has contributed to margin expansion even in the face of raw material cost inflation. With a gross profit increase of 140 basis points year-to-year and overall margin improvement north of 300 basis points in the quarter, the company has evidently managed to more than offset the cost pressures through pricing and Revenue Growth Management (RGM). The steadiness in commodity prices provides a stable outlook for continued margin strength.

Innovation and Science-based Differentiation

An emphasis on science-based innovation remains central to the company’s success across various products, from oral care to skin health. Their approach to innovation, especially with the Hawley & Hazel business in China, is poised to bring about a positive growth trajectory. It’s important for investors to note that the science-driven strategy is mirrored in the vigorous performance of Colgate in China's e-commerce sector, signifying the value of innovation and brand strength in key markets.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. Welcome to today's Colgate-Palmolive Third Quarter 2023 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

[John Faucher, executive]

Thanks, Allison. Good morning, and welcome to our third quarter 2023 earnings release conference call. This is John Faucher. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the Q3 2023 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2022 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 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the Q3 2023 earnings press release and is available on Colgate's website.

Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q3 results and our 2023 outlook. And then we will open up for Q&A. Noel?

[Noel Wallace, executive]

Good morning, everyone. I want to give you my thoughts this morning on a very strong quarter of top and bottom line growth along with our raged 2023 outlook. As you can see in the materials we published this morning, our strategy is working, and the continued execution of the strategy leaves us well positioned as we look out to the future. We believe this will enable us to deliver balanced organic sales growth going forward, growing in all 6 divisions, all 4 of our categories and with both volume and pricing growth.

Organic volume performance improved in the quarter which we believe puts us on our way towards a return to volume growth. And with the leverage from this balanced growth along with the global productivity initiative, focused cost containment and our Funding the Growth initiatives, we now have multiple points of leverage in our P&L. This should enable us to deliver consistent operating profit and earnings growth going forward. You can see this in our Q3 results as our gross margin was up both sequentially and year-on-year driven by sales growth and overheads were down driven by logistics.

This leverage allowed us to deliver another quarter of double-digit operating profit growth, along with a 23% increase in advertising. Some of our markets remain choppy, and the headwinds like foreign exchange and higher interest rates will continue to impact us. But we are leveraging the strength and the global reach of our brands while driving scale advantages through our science-based innovation, digital marketing, revenue growth management and best-in-class on-the-ground execution.

Our momentum leaves us very well positioned to deliver strong results with compounding top and bottom line growth as we look to generate consistent long-term creation -- value creation for all of our stakeholders. And with that, I'll turn it over to questions.

[Operator]

[Operator Instructions] The first question will come from Peter Grom of UBS.

[Peter Grom, analyst]

I hope you're doing well. So Noel, I wanted to ask specifically on just kind of the return to balance top line growth and kind of how you see that evolving over the next couple of quarters? I mean excluding H&H, you probably already would have been there in this quarter as you highlighted in the prepared remarks. So is this something that you kind of expect to achieve, call it, in the near term as you kind of exit '23? Or is it going to be a dynamic that you would expect to kind of play out over the next several quarters?

[Noel Wallace, executive]

Yes. Peter. Listen, we're obviously very pleased with the sequential improvement really throughout the entire P&L. Volume improved. And as you rightly pointed out, if you take the Hawley & Hazel and Hays business out, which as you know, we're working through a price increase in that market, our volume inflected positive in the quarter. And we've seen that pretty consistent around, particularly some of our emerging markets where we saw very positive volume.

So we're pleased with the sequential improvements. The [indiscernible] dynamics are consistent with what we talked about, but they're not necessarily linear. I mean we're seeing some puts and takes as we look around the regions and the different categories that we compete in. Obviously taking more pricing across the pet food business as ag prices continue to stay high. But overall, the sequential improvement is playing out more or less as we anticipated. And as we move forward, our intention is to continue to drive balanced organic growth in the short and the long term.

[Operator]

The next question is from Andrea Teixeira of JP Morgan.

[Andrea Teixeira, analyst]

Noel, you mentioned the full year guidance, of course, was raised 7 to 8, but it still implies a deceleration, of course, in the fourth quarter. And you called out in your prepared remarks some of the puts and takes in particular, anniversarying the acquisition impact and then that would lead to a reduction in third-party manufacturing for private label. Can you break that down? Because it also implies, I'm assuming the base business a deceleration, and I understand that you're lapping a lot of the pricing.

But just as we think about volumes and in particular in North America, there has been a sequential improvement, and you called out as well that you were expecting promo and more activations in trade. So anything you can share with us in terms of the progress you've made to regain volumes in North America as it relates to the full guidance for the fourth quarter?

[Noel Wallace, executive]

Andrea, let me take the North America piece of that question first, and then I'll highlight more [indiscernible] across the enterprise. So North America is on pace with exactly what we talked about in the Q2 call, continued sequential improvement across the board, and we anticipate that they will see sequential improvement in their business as we move through the fourth quarter. A lot of that was getting the promotional cadence right, and we started to implement some of that promotional opportunity in the back end of the third quarter.

Most of that will come through in the fourth quarter and we're pleased with it. Obviously, the important part about North America is the Oral Care business. That inflected positive with high single-digit growth in Oral Care and positive volume growth on that business in the quarter as well and we anticipate that will continue as we move through the balance of the year. So North America overall trending as we expected. We're still not pleased with some of the scanner shares. But as we said, we'll get the promotional opportunity right as we move through the balance of the year.

And importantly, our non-promoted volume, which reflects, I think, the strong advertising that we're putting into the North America business continues to inflect positive. Now, strategically around the world, we're seeing volume improve across the world. Now that is based on a lot of the geographies we've seen. The pricing start to subside a bit as we're not taking more pricing in some of the markets. Really pleased to see in markets where we took pricing early like Latin America, where we've seen a very positive inflection in volume.

Volume was up 5%. And if you look at Mexico and Brazil specifically, Mexico was up mid-single digits. Brazil was up high single digits in volume. So again, I think a reflection of the strong advertising innovation and the fact that over time, as pricing settles out in the market, you see the volumes come back, and that's pretty consistent.

Europe, likewise, a little improvement in volume. So we're seeing exactly as we expected to see volumes start to sequentially improve, but it's not necessarily linear. And I want to leave that point that we'll watch that carefully as we move forward and we'll continue to implement our strategies of strong innovation across the core adjacencies and channels and we'll see that play out as we move forward.

[Operator]

Next question will come from Dara Mohsenian of Morgan Stanley.

[Dara Mohsenian, analyst]

Can you guys discuss market share performance in your key geographies and product categories in Q3, how you're performing on the share front. And given you've taken robust pricing, what are you seeing competitively in terms of the pricing and promotional environment? And how might that play into your share performance?

[Noel Wallace, executive]

Sure. Dara. Sure, overall, shares look good. We're up on a global basis. Let me just take toothpaste, which we track globally. Shares are up about 100 basis points. That's driven by strong performance in Europe, where we've seen record high shares, particularly behind the strategy of pushing our higher-end therapeutic brands on the premium side with elmex and meridol as well as strong innovation on the Colgate side behind whitening. So Europe, delivering very strong.

Africa, Middle East, were up in 10 of 11 markets in market shares there, so continue to show nice performance. Pleasingly, Latin America, where we -- as you know, we have very high shares, shares are stable. We've seen shares grow in Brazil, slightly down in Mexico, but tracking up in recent periods, so we're pleased with that.

U.S. In the recent weeks, we started to see some of the promotional volumes come back as we very thoughtfully put promotions in the market. We're not just going to buy share back for the sake of buying it back. We're going to get a much healthier category as we move forward, and that's been very deliberate in how we thought about that business there.

Africa -- excuse me, Asia shares continue to be strong for us in China. So we're pleased with that. And likewise, as you go around the region, share is pretty good in India. We've done some really good work on our core business in the last couple of months, and we anticipate that's going to reflect positive for our core business. Overall, pleased with market shares.

On the Hill's business, likewise, very strong volume and value share growth in pet specialty and neighborhood pets, which is where we track. We're one of the fastest-growing brands in both those retail environments. So we're pleased with, obviously, the strategy of bringing innovation and the increased advertising support we're bringing into the business. A little softness on our home care business in the U.S., and that again, attributes right back to the promotional cadence, and we're addressing that as we move through the fourth quarter.

[Operator]

Our next question will come from Filippo Falorni of Citi.

[Filippo Falorni, analyst]

So clearly, you returned to solid volume growth at Hills and solid results despite a more challenging category. So Noel, can you maybe comment about how your business its position compared to the category weakness that we're seeing, which seems concentrated more on the wet side and the treat side? And then just thinking about Q4, how should we think about the progression of volume in Hills considering you're going to lose some of the private label volumes, both from a top line, but also from a margin standpoint.

[Noel Wallace, executive]

Yes. Thanks, Filippo. So again, a great quarter for Hill's. Obviously, with strong balance, pricing and volume growth in the quarter. That growth was quite pervasive across the world as we saw a good growth in the U.S., as well as in some of our emerging markets and likewise, in Canada. Category has slowed a bit, as you've heard from others That's, as you mentioned, a combination of sustained pricing in the category over the last 4 or 5 quarters, and ag prices still remaining high.

And so it's not to be unexpected that the volume would slow a little bit. As you rightfully point out, you've seen some conversion from wet into dry. That lowers the volume. You've seen obviously treats, which is more discretionary. And you'll recall, as we said in the Q2 call, we don't have a significant business at all in the treat segment. And likewise, I would say the nonscience brands continued to perform quite well but are not immune to the continued challenges that you highlighted in the category.

But as I mentioned just a moment ago, we continue to grow share. And for us, this is a share gain. We only have 5% to 6% penetration in our largest market in the U.S. So we have a lot of upside still. Hence, the reason why we continue to bring strong innovation in the market. Hence, the reason why we continue to advertise very aggressively to drive household penetration. Likewise, we see opportunities continued in the prescription diet. Our study show that only about 5% of pet owners are using a prescription product, whereas potentially up to 80% could be using it, so that affords us an upside.

We've talked about wet obviously, some conversion from wet into dry, but we have very low shares in the wet segment, which has been one of the historically growing segments, and we have plans, as we've talked about in the past, to continue to grow that. So overall, we feel we're positioned well, but not immune to some of the softness that we've seen. But likewise, as I mentioned, we're very focused on driving share and ultimately expanding this business internationally.

We'll watch the category carefully. We know our retailers are very focused on nutrition. The Science segment continues to perform well, and that's where we're putting our strategies in order to continue to drive penetration.

[Operator]

Next question will come from Jason English of Goldman Sachs.

[Jason English, analyst]

And let's stay there. I'll stay on pet nutrition for a minute, but let's pivot to maybe the bottom line. It looks like gross margins for that segment down 360 bps this quarter, kind of bringing 2 year to down 900, very consistent with what we saw last quarter. And I get the mix benefits of the acquisitions, I get the start-up expense, I get the inflation. Like these are all obviously factors that have been contributing to the pressure.

But I'm expecting all of them to sort of subside as you start to rotate the product out of the Red collar assets as you start to pivot some of your resources from starting up plants to attacking some of the efficiency and hopefully, as some of the input cost pressure subsides and price catches up, but we haven't yet seen progress yet.

What is a reasonable expectation for us as we try to level set our own expectations. When should we start to see the benefits of all those dynamics come to fruition? And how much recovery should we be expecting?

[Noel Wallace, executive]

Well, thanks for the question. Again, sequentially, things are moving in the right direction, and that's exactly what we've talked about in previous calls. And obviously, operating profit and EBIT continues to inflect where we want it. We continue to support the business with a disproportionate amount of our total increase in advertising, as we talked about. That is, again, strategic based on the low penetration and the real headroom that we continue to see in the category for us.

As we see ag prices have somewhat flattened out, and that's good news for us. Given a lot of the pricing that we've taken, we anticipate that, that will start to inflect more positive in our gross margins as we move forward. As you rightfully pointed out, we have a significant amount of cost still moving through the P&L on getting our new facilities ramped up. The new wet facility will start to ramp up here in the fourth quarter. So we'll have some costs associated with that. But ultimately, over the longer term, those costs will subside, and we feel good about where we are with the new Red collar plants, getting those integrated in.

So overall, with pricing continuing to flow through with ag prices holding and continuing to drive premiumization in the category, we feel good about the long-term trajectory of operating margins in this business.

[Operator]

Next question will come from Olivia Tong of Raymond James.

[Olivia Tong Cheang, analyst]

I wanted to ask you a little bit more about North America, given that a couple of things first, the pricing accelerated on a 2-year stack. If you could talk about the drivers of that. I see promotion is a big piece of that. You mentioned advertising was up 25% in North America. Was that the highest amongst the divisions? And just if you could talk a little bit more about how you think about the ROI and the timing of the impact of that higher advertising?

[Noel Wallace, executive]

Yes. Thanks, Olivia. Again, as I mentioned earlier, we're pleased with the progress. Again, this is a very deliberate strategic execution of how we're trying to get the health of our brands and the health of our P&L in a better place. And as I mentioned in the second quarter call, we may pull back a little bit too far on some of the promotional cadence, but we're adjusting but adjusting it very prudently, where we see the ROI and where we believe we can drive sustained volume and share opportunity moving forward.

The 25% increase was not the highest, as I just mentioned. Hill's continues to receive a disproportionate amount of the advertising increase. But North America again, given the vibrancy of that market and the long-term strategic importance of that market, we will continue to invest for the long term. Great progress on the operating margins, as you saw move through that P&L. That is a reflection, again, I think, of a much more prudent approach to pricing in the market and our promotional cadence. And we feel good about the sequential growth that we saw in the quarter and the sequential growth that we'll continue to see in the fourth quarter.

[Operator]

Next question will come from Bryan Spillane of Bank of America.

[Bryan Spillane, analyst]

I had a question on ad spend. I think year-to-date now, we're over 12% -- we're running at a rate that's about a little over 12% as a percentage of sales. And so given the increase that we'll end the year at, is this a good base to think of in terms of ad spend going forward? Or would you consider taking up further? So just trying to get a sense now if we've kind of rebased or if this is a new base in terms of ad spend?

[Noel Wallace, executive]

Yes. Thanks, Brian. Listen, it's not as much as a percent of sales. It's really about how we're getting -- what return on investment we're getting for that. And clearly, you've seen that play through the P&L on the strong organic in the business, the continued growth on market shares around the world, particularly in those strategic categories that we're pushing more deliberately with the advertising.

So it's really about an ROI. And as we see that play back through the P&L, which we clearly are, we'll continue to invest. So we're really focused now, I'll say, on making sure we continue to optimize that investment. We put a lot more focus on programmatic buying, a lot more focus on personalization and getting content right. You heard Yves talk about when we were down in Florida with regards to the importance of advertising creative and content development.

So putting a lot more focus to get better ROI for what we're delivering. So not necessarily a percent, but overall, we are getting the performance through the P&L and through our businesses on the ground.

[Operator]

Our next question will come from Steve Powers of Deutsche Bank.

[Stephen Robert Powers, analyst]

Okay. Great. Maybe 2 questions if I could. One is to follow up and round up of volume conversation. You talked about line of sight to improvements in North America and in Asia Pacific. The other area of softness in the quarter was Europe, just love some perspective on sort of your path to volume improvement in that region?

And then more broadly, stepping back, I guess this builds a little bit on the question Bryan was just asking, but you had just tremendous success this year in driving underlying margin improvement, which has allowed the A&P reinvestment that we've seen year-to-date. I guess as your scenario modeling and starting to plan for the year ahead, how do you weigh the puts and takes on margins as you look ahead? And what's your level of confidence you can continue to drive that underlying margin improvement to enable the investment should the ROI exist?

[Noel Wallace, executive]

Yes. Steve, let me talk again a little bit on volumes. Globally, as you've heard from others volumes in the categories tend to be down around 2% to 3%. This is a function, obviously, of the aggressive pricing that you've seen sequentially over the last 3 or 4 quarters. So that continues to improve. And in my view, that will continue to improve as pricing moderates over the next couple of quarters, and we lap some of the aggressive pricing that we've had certainly within our P&L.

But from a category standpoint, there's going to be obviously a shift from more pricing-driven organic growth to more volume-driven organic growth. And it's very difficult to actually predict exactly at the pace that's going to happen by geography because we've taken pricing -- competitors taking pricing to different points in the year. So over time, sequentially though, we see volume returning to a more normalized level and we see pricing returning to a more normalized level. And that's more or less how it's playing out, difficult to predict from geography to geography, from quarter-to-quarter.

On the margin, obviously, a lot of focus, as you know, across the business. We've got a lot of levers in the P&L now to drive operating margins and gross margins. Why don't I let Stan talk to you a little bit about that. He's been very focused on driving that across most of our regions.

[Stanley Sutula, executive]

Steve, it's a good question on the driving margins. So if you take a look at what we've been able to do with the income statement this year, the top to bottom, the flexibility and the strength on all the different lines have given us a lot more opportunity to drive margin and it gives us flexibility, and that allows us to react to market conditions and anticipate and more importantly, invest in those areas of the business that can deliver value.

When we look at all those collectively, we think that leaves us well positioned for expanding margin over time. And while we're not going to give guidance for '24 here today, we think that we are exiting the quarter with a stronger business model here than we entered the year.

[Operator]

Our next question today will come from Lauren Lieberman of Barclays.

[Lauren Lieberman, analyst]

So in the release or in the prepared remarks, you talked about some of the improvement in Oral Care toothpaste specifically in North America. But I was wondering if we could talk a bit about home and personal care. The advertising spend, like you said, up 25% this quarter. Just curious about how that is maybe being allocated across the different divisions within North America? How you're thinking about kind of innovation in Home and Personal Care. Noel, you had mentioned some our promotional cadence dynamics improving for Home Care in the fourth quarter, but I was just curious of efforts beyond that to kind of get those businesses more on the right track?

[Noel Wallace, executive]

Sure. So overall, the bulk of our North America business is oral care, and it receives the bulk of that advertising increase. But pleasingly, we are supporting our home care and our personal care businesses, which is important. And clearly, as we get the promotional cadence back on those businesses, particularly here in the fourth quarter, we anticipate we'll see an improvement in shares.

Now again, we had a lot of unprofitable share historically where we were chasing share and buying share, and we have deliberately as we see great health across our P&L and the geographies across the world, we have the opportunity to rightsize that in the U.S. and get the shares much more profitable and get much more sustainable share growth moving forward. And the intention is to continue to support all those businesses in the U.S. as we move forward.

The other one is our Skin Health business in the U.S. is getting a good levels of advertising. That continues to perform well. If you take our Skin Health business outside of China, that grew double digits in the quarter for us. So we continue to see a nice growth on that business, and we'll continue to support that in the U.S. market as well.

[Operator]

Your next question will come from Chris Carey of Wells Fargo Securities.

[Christopher Carey, analyst]

I couldn't help but notice the commentary around the currency impact carrying into 2024. At the same time, Noel, you were quite clear in your remarks today that Colgate has multiple levers to continue profit growth. This year, you're going to be doing high single-digit earnings, It would appear on low single-digit currency impact.

You, I think, put up the best productivity number on a basis point impact that we've seen in almost 10 years despite raw materials, which remain stubbornly high. Well, I know there's conversion and another cost in there as well. But just as you think about next year, and I know you're not giving guidance today, but is your ability to still deliver high single-digit earnings this year despite the currency headwind, give you confidence on next year, especially because some of these drivers like pricing, perhaps strong productivity and other levers at your disposal remain available to you going into next year.

[Noel Wallace, executive]

Yes, Chris, thanks. Listen, I'm not going to get into 2024, start predicting where things will evolve. But clearly, foreign exchange move more negative in the quarter for us. And you've seen that, obviously, the dollar strengthening as we move into the fourth quarter. But as Stan rightfully pointed out, I think the important aspect here is that the levers within our P&L are better than they've been in quite some time.

We have different aspects playing to our advantage now. Obviously, we're getting the pricing executed in the market. We're starting to see volume flow through. Over the longer term, that will improve efficiencies in our plants. As we've gotten our forecast accuracy improved in the plant, that allows us to obviously run more of our funding to growth, which obviously came through very strong. We have the productivity moving through the P&L. So we're really trying to pull on all levers to give us as much flexibility as possible.

Foreign exchange is obviously a big unknown as we move forward. But you've seen us historically be able to price against us. We obviously have some inflationary pricing in the P&L in the third quarter based on where we see the Argentine peso go where we see a part of the -- Nigeria foreign exchange has been an issue as well and likewise in Turkey. But over time, the important part is for us to drive flexibility through our P&L, so we can adjust to market circumstances in the most efficient and prudent way.

[Operator]

Next question today is from Mark Astrachan of Stifel.

[Mark Astrachan, analyst]

So yesterday, a competitor of yours sort of in certain categories, talked about refocusing the business on product superiority. Obviously, a large U.S. competitor has successfully pivoted the business towards that strategy with success in recent years. Curious how you think about or would assess the portion of your portfolio an innovation that meets the criteria?

Have you adjusted R&D as a focus, the spending towards these product areas? And as sort of a second question, it might be related, might not be, the issues you bring up with the H&H business in China, maybe I'm naive and assuming that some of it could potentially relate to this, where you're taking prices up but not necessarily innovating. If that's wrong, obviously, talk through that, but just kind of talk generally about what's going on there and how much is price, how much is other stuff?

[Noel Wallace, executive]

Yes. Thanks, Mark. Let me come back to the core of our strategy, which was innovating across our core and adjacencies and channels and all of it is underpinned by science-based innovation. And that has always distinguished our portfolio historically, and we have absolutely dialed that up in terms of how we focus our R&D efforts across the organization.

Good examples of that is obviously the growth that we've had in the whitening segment. We have, in our view, some of the best efficacy-based products in the category. We're very pleased with the growth that we've seen in whitening at the premium side with our peroxide based. We've obviously moved into pens, which is incremental consumption opportunity and an opportunity to drive [ regiment ] and premiumization. We moved into our Chair distinct strategy, which is anchoring science-based whitening through the profession as well.

So science continues to play very importantly to our growth strategy. And you've seen that play out in Oral Care, certainly seeing it play out in our Pet Nutrition business as well as very recently in Skin Health. And likewise, as we look at some of the innovations coming on -- in our home care business, we've seen some great innovation on concentrate, some great innovation on tablets in Europe. So we continue to use science as a way to drive differentiation and certainly drive our premiumization.

Specifically on the Hawley & Hazel business, as I mentioned in the second quarter, we took pricing, that has taken longer to actually get executed in the market given the multiple levels of our go-to-market strategy on the Hawley & Hazel business. And obviously, you've seen a slowdown in the category in China, which is has also come on top of that. But the good news is we exited the third quarter, we saw the Hawley & Hazel business start to inflect positively and we continue to see that as we speak.

So we're not completely out of where we wanted to be, but everything is moving in the right direction. Conversely, the innovation behind Hawley & Hazel is very strong. Once we have that pricing executed, we'll come in with a good first half plan of innovation, and that will be science-based innovation, as I mentioned. The parallel to that is obviously the great success we've had in China with the Colgate business. The Colgate business continues to perform very, very well, growing share in e-commerce, the fastest-growing channels, and that is driven behind premium innovation with real science-based structures to that.

[Operator]

Next question will come from Rob Ottenstein of Evercore.

[Robert Ottenstein, analyst]

Great. I'm wondering if we can drill in on the U.S. And maybe talk a little bit about what's going on in the nontrack channels, kind of which channels are leading the growth? And why do you continue to -- do you expect that to continue in the future, having a pretty big gap between the scanner results and the non-track? And then if you could put that also in the context of how you see the U.S. consumer and the health of the U.S. consumer, developing over the next couple of quarters and any pivots that you may do or adjustments to potentially a weakening consumer outlook.

[Noel Wallace, executive]

Clearly, in the results, and you've seen the scanner data, which continues to be soft. And as I mentioned, we're addressing that more sharply in the fourth quarter. Our non-track business continues to perform exceptionally well. And that has been a strategy that we've talked about for quite some time. Those are some of the faster-growing channels. We continue to invest in those channels. We continue to grow share in those channels.

And overall, that's certainly leading to a broader-based healthier business for us moving forward. You talk Club, you talk some of the discount channels, you talk some of the e-commerce channels as well. So overall, we think we're well positioned in the U.S. to continue to leverage where the growth is coming from. The consumer continues to be resilient. I would say the promotional environment is constructive right now. We've seen a little bit of pickup in some categories, but overall, still below pre-COVID levels. And as we continue to be, as I said, very thoughtfully prudent on how we elevate our cadence of promotions moving forward. We feel good about our ability to continue to drive non-track.

Now I'll remind you the non-track are about 14% of the total company sales. And so while very important for us in the U.S. and the team there under Jesper's leadership is laser-focused on addressing that. We're going to get that back to a healthier share as we move forward.

[Operator]

Our last question today is a follow-up from Bryan Spillane of Bank of America.

[Bryan Spillane, analyst]

Stan, just a question around inflation. I know in the press release or the prepared remarks you talked about -- or I guess the press release, talked about still several hundred million dollars of inflation expected for this year. Can you just give us some context of, is it the same moderating? Like as we're exiting the year, just how we should be thinking about the trend on inflation?

I know you called out inflation in pet. So just trying to get a sense of whether or not it's -- how it's trending? Is it trending better or worse than kind of where we were coming out of 2Q.

[Stanley Sutula, executive]

Yes. Sure, Brian. As we said, our view on raw materials in total remains consistent with prior quarters, and we still do see several hundred million of gross cost inflation, raw materials for 2023. And while the overall total is in line, there have been some shifts underneath that. First, agriculture has not eased; in some cases, it actually gone up. That affects primarily our Hill's business. Offsetting that, some commodities such as resins and oils have actually softened a bit.

But when we look in total, that basket is roughly still in line. And while it hasn't gotten worse, it hasn't gotten a lot better. The one we continue to launch carefully is obviously energy with all the volatility in that market. And then also, just keep in mind, some of our raw materials are not pure commodities, but specialty; flavors, fragrances, those tend to have less volatility. But I think if you pull back, our teams have done a great job driving productivity to mitigate some of that inflation.

And you saw in our funding the growth, this has really helped us balance the margin. You combine that with RGM and has resulted in that margin expansion. So if I kind of pull that back, while that's been relatively steady in total, the pieces moving around underneath, that has -- our gross profit in total for the company has gone up 140 basis points year-to-year, and that's a combination of that pricing in RGM has been able to more than compensate for the raw materials going through.

So as we look at that heading into the last quarter, we haven't actually seen a lot of change in the commodity basket. So we expect that to continue through the end of the year.

[Noel Wallace, executive]

Yes, Bryan, I'd just reiterate, again, that 140, you add another 50 basis points for private label. And if you add logistics in there, which others include in cost of goods, that adds roughly another 130, so north of 300 basis points of margin improvement in the quarter, and that's terrific in terms of how we saw things ultimately playing out.

And as we see, hopefully, a more benign cost environment over the medium term and our ability to hold pricing and continue to innovate at the high end, we feel pretty good about the continued ability to sustain high margins in the categories in which we compete.

So thanks, everyone, for joining the call today. Let me just close out by saying we really appreciate your interest in the company. We hope you agree that we have the strategies and the plans in place to deliver consistent compounded profitable growth to drive value for all of our shareholders.

And I would be remiss not to thank all the Colgate from all of folks around the world who have delivered a very strong quarter for us in the third quarter of 2023.

So thanks, everyone. We'll talk to you in January.

[Operator]

Conference has now concluded. Thank you for attending today's call. You may now disconnect.