Good morning. Welcome to Colgate-Palmolive's 2025 Annual Meeting of Stockholders. Today's webcast may include forward-looking statements. Actual results could differ materially from these statements. Please refer to Colgate's most recent filings with the SEC, including its 2024 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. Now, I would like to turn the webcast over to Chairman, President, and Chief Executive Officer, Noel Wallace.
Good morning, everyone. I'm Noel Wallace, Chairman, President, and CEO of Colgate-Palmolive. On behalf of your Board of Directors, I would like to welcome you to our 2025 Annual Stockholders' Meeting. After we have conducted the official business of the meeting, I will review our strong 2024 performance and then discuss how our strategy has us well-positioned to deliver growth in 2025 and beyond. We will then proceed to the live question-and-answer session. I am joined today on this webcast by three senior members of our leadership team: Jennifer Daniels, Chief Legal Officer and Secretary; John Faucher, Chief Investor Relations Officer and Executive Vice President for Mergers and Acquisitions; and Stan Sutula, Chief Financial Officer. I will now turn the meeting over to Jennifer, who will conduct the formal portion of this meeting.
Thank you, Noel, and good morning, everyone. I hope you're all well. First, a quick note about the question-and-answer session Noel just mentioned. In order to provide our stockholders with the broadest opportunity to ask questions, we have had the Stockholder Question Portal open since March 26 on ProxyVote.com. Questions can also be submitted now through the end of the meeting using the Ask a Question text box on the virtual meeting web portal. We will do our best to answer as many questions as time allows, but only questions that are pertinent to the meeting will be addressed, as detailed in our Rules of Conduct. Both the Rules of Conduct and the agenda for today's meeting are available in the Meeting Materials section of the web portal. I am pleased to present the formal portion of today's meeting, which I now call to order.
Each stockholder of record on March 10, 2025, the record date for the meeting, has been given proper notice of the meeting and a quorum is present. Affidavits of mailing of this notice, the proxy materials, and the annual report will be filed with the records of the meeting. Next, we will present the matters to be voted upon. There are five items of business on the agenda that require voting by our stockholders, and the polls are open for voting. The votes will be tallied by Mr. Peter Descovich, the independent inspector of elections, who joins us from Broadridge Financial Solutions. Please note that I will present all of the proposals, and then we will give stockholders an opportunity to make any comments on the proposals themselves after all the proposals have been presented. The first order of business is the election of directors as nominated by the board.
The nominees are as follows: Mr. John Bilbrey, Executive Chair of the Board of Olaplex Holdings, Inc, Mr. John Cahill, Vice Chair of the Kraft Heinz Company, Mr. Steve Cahillane, Chairman, President, and Chief Executive Officer of Kellinova, Ms. Lisa Edwards, Former Executive Chair of Diligent Institute, Dr. Martin Harris, Vice President of the Health Enterprise and Chief Business Officer of the Dell Medical School at the University of Texas at Austin, Ms. Martina Hund-Magin, Former Chief Financial Officer of Mastercard, Inc, Ms. Kimberly Nelson, Former Senior Vice President, External Relations of General Mills, Inc, Mr. Brian Newman, Executive Vice President and Chief Financial Officer Designate of CVS Health Corporation, Ms. Lori Norrington, Operating Partner of LeadEdge Capital, LLC, and Mr. Noel Wallace, Chairman, President, and Chief Executive Officer of Colgate-Palmolive Company.
There have been no other nominations pursuant to our bylaw procedures, and the board recommends a vote for each of the nominees. The second item of business is the ratification of the selection of PricewaterhouseCoopers, LLP, as our independent registered public accounting firm for 2025.
2025.
The board recommends a vote for this proposal. Representatives from PricewaterhouseCoopers are also with us today, and they will be available during the question-and-answer session later in the meeting to respond to appropriate questions. The third item of business is the non-binding advisory vote to approve the compensation of our named executive officers as described in the proxy statement. The board recommends a vote for this proposal. The fourth item of business is a stockholder proposal submitted by John Chevetton regarding an independent board chairman. We will now connect with Ms. Cam Franklin, who is representing Mr. Chevetton, to hear the statement in support of the proposal. Ms. Franklin, out of respect for the other stockholders in attendance and to allow ample time for Q&A, we ask that you please limit your comments to a period of three minutes. Operator, can you please open Ms. Franklin's line?
Good morning. Can you hear me? Okay. Proposal for independent board chairman sponsored by John Chevetton. Shareholders request that the Board of Directors adopt an enduring policy and amend the governing documents as necessary in order that two separate people hold the office of the chairman and the office of the CEO. Selection of the chairman of the board, the board shall require the separation offices of the chairman of the board and the chief executive officer. Whenever possible, the chairman of the board shall be an independent director. The board has the discretion to select a temporary chairman of the board who is not an independent director to serve while the board is seeking an independent chairman of the board on an accelerated basis. This policy could be phased in when there is a contract renewal for our current CEO or for the next CEO transition.
This proposal topic has received 47% support from Colgate-Palmolive shareholders recently. This proposal topic also received 47% support from shareholders of Eversource Energy less than 10 days ago. A lead director is no substitute for an independent board chairman. A lead director cannot call a special shareholder meeting and cannot even call a special meeting of the board. A lead director can delegate many of his lead director duties to others. With the current CEO serving as chair, this means giving up a substantial check and balance safeguard that can only occur with an independent board chairman. Please vote yes, independent board chairman proposal four. Thank you.
Ms. Franklin, thank you for your interest in our corporate governance. The board has recommended a vote against this proposal for the following reasons. The board believes it would not be in the best interest of stockholders for our governing documents to require an independent chairman and the separation of the chairman and CEO roles. The board is committed to the highest standards of corporate governance, especially board independence, accountability, and responsiveness, and has a highly effective independent lead director with significant authority and clearly defined responsibilities to ensure proper checks and balances. Additionally, all committees of the board are comprised entirely of independent directors, including the committee chairs. Stockholders are best served if the board retains flexibility to decide what leadership structure works best for Colgate based on the facts and circumstances existing from time to time.
The board believes that the current leadership structure works well for Colgate at this time. For these reasons, and as discussed more fully in the proxy statement, the board has recommended a vote against this proposal. The fifth and final item of business is a stockholder proposal by the National Legal and Policy Center regarding plastic packaging policies. We will now play an audio recording from Mr. Paul Chessler of the National Legal and Policy Center with a statement in support of the proposal.
Good morning. Proposal five questions the justification for Colgate-Palmolive's plastics policies. In the proxy statement, Colgate attributes its commitment to the so-called circular economy on plastics to its pledge with the Ellen MacArthur Foundation. Who is Ellen MacArthur, you may ask? Ellen MacArthur is an accomplished yacht racer who has sailed around the globe a few times, so good for her. By her own admission, she could not get into college because her grades were not good enough. This boat racer, without any formal education about environmental science, chemistry, economics, or any other science or statistics-based expertise, has been upheld as the authority on what multi-billion-dollar corporations like Colgate decide is the best way to manufacture and package their products. Let's address some facts on plastics. The company's pride right now is its new recyclable toothpaste tube. That does not mean that it gets recycled.
No recycling facilities will take it, so it goes to the landfill or to the incinerator. Colgate is now being sued for this false claim. How about a case study of something that is actually recycled? Using a Colgate-backed online evaluation tool, we compared the life cycle analysis of a hard-to-recycle fully virgin plastic container versus a recycle-ready version that contains 25% post-consumer recycled content. Due to the density differences between the recycle-ready versus the hard-to-recycle material, this substitution produces several negative environmental outcomes. For the recycle-friendly version, while 8% of the packaging could be recycled again, the additional pollution result by weight was far worse than the hard-to-recycle option. According to Colgate's own favorite plastics analytical tool, the recycle-friendly version of the packaging created 77% more pollution than the virgin plastic container.
41% more of the recycle-ready packaging by weight would end up at landfills, and 34% more of the recycle-ready packaging by weight would end up being incinerated. Greenhouse gas emissions showed an increase for the recycle-friendly option due to its extra weight. As you can see, the cost to the company for shifting to this type of production are significantly higher for recycle-ready packaging. You can be certain these kinds of costs and outcomes apply to other types of plastics packaging. Thus, Colgate pays significantly more for feel-good measures that accomplish no benefit for the environment. The company must undertake serious scientific and economic analysis of its plastics policies instead of following a fact-free, activist-driven agenda. Please vote for Proposal Five.
We thank National Legal and Policy Center for their interest in our corporate governance. As detailed in the proxy statement, our plastic production and packaging policies are already based on objective, science-based targets and support our business and growth strategy. We also wish to clarify, in response to a question we received from a stockholder about this proposal before the meeting, that unlike the proponent, we believe that eliminating plastic waste is an important priority, given that most of our products are packaged in plastic today and that the majority of our stakeholders are increasingly concerned about plastic waste. In addition, the board believes our existing disclosures on these policies provide our stockholders with the information they need to assess our efforts and progress, and that therefore the re-examination and report requested by the proponent would be an unnecessary use of time and resources without providing any meaningful additional information.
Given our existing rigorous processes and public disclosure in this area, the board does not believe that implementing this proposal would benefit our stockholders. For these reasons, and as discussed more fully in the proxy statement, the board has recommended a vote against this proposal. That concludes the matters to be voted on as outlined in the notice of the annual meeting. If any stockholder would like to make a comment regarding any of the proposals, please submit your comment through the web portal using the Ask a Question text box. At this time, any stockholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there.
Stockholders who have sent in proxies or voted via telephone or internet and do not wish to revoke or change their vote do not need to take any further action. We are now going to take a short pause to allow for any stockholders who have not yet voted to do so. Now that everyone has had the opportunity to vote, I declare the polls for the meeting closed. I have received the preliminary tabulation from Broadridge, and on the basis of those preliminary tabulations, I am pleased to report that all the director nominees have been elected, that the selection of PricewaterhouseCoopers as our independent registered public accounting firm for 2025 has been ratified, that the compensation of our executive officers named in the summary compensation table of the proxy statement has been approved by advisory vote.
The preliminary tabulation also shows that neither the stockholder proposal on independent board chairman nor the stockholder proposal on plastic packaging policies has received the necessary majority and therefore neither has been approved. We share the proponent's commitment to good corporate governance. Be assured that we continue to review the most effective means of governing the company in the best interest of stockholders. The final vote count for each item on the ballot will be reported on a Form 8-K filed within four business days of this meeting. That concludes the formal business of today's meeting, and I now declare the formal meeting adjourned. I will now ask that we start the video presentation of Noel reviewing the progress of our company. After Noel's business update, we will answer your questions.
If you wish to ask a question, please submit it now using the Ask a Question text box on the web portal. As I noted earlier, we will try to answer as many questions as time allows, but only questions that are pertinent to the meeting will be addressed as detailed in our rules of conduct found on the web portal. If there are any pertinent questions that cannot be answered during the meeting due to time constraints, we will plan to reach out directly to that stockholder after the meeting using the contact information provided. Now, here's Noel's business review.
At Colgate, we live fundamentally to bring a smile on people's faces day in and day out. What better way to do that than continue to drive innovation and bring category-defining solutions to our consumers every day?
2024 was another year of strong performance for our company as we continued to execute on our strategy in order to deliver peer-leading growth and shareholder value. We delivered record net sales in 2024, surpassing $20 billion for the first time. Net sales grew 3.3% on top of 8.3% net sales growth in 2023. We delivered organic sales growth of 7.4% in 2024, which followed 8.4% organic sales in 2023. This was our sixth consecutive year of organic sales growth, either in line or ahead of our 3-5% long-term target range. We grew organic sales in all six of our divisions and all four of our categories: oral care, pet nutrition, personal care, and home care. We also executed against our goal of delivering consistent compounded earnings per share growth. In 2024, we grew our gross margin and our operating margin.
We increased advertising spending by 15% on top of a 19% increase in advertising spending in 2023. We delivered another year of record funding the gross savings. We grew our base business earnings per share in the double digits on top of high single-digit growth in 2023. We grew free cash flow by 17% in 2024 through strong net income and disciplined working capital performance. We increased our quarterly dividend rate for the 62nd consecutive year. After a $0.02 per quarter increase in 2024, we announced a further $0.02 increase in 2025. These results allowed us to continue to deliver superior total shareholder return with strong performance over the last one, three, and five years on both an absolute basis and versus our peers.
We delivered these strong financial results while still investing back into the business to drive brand health and household penetration, the key drivers of long-term growth. We increased our advertising-to-sales ratio to a record high while still driving improvements in our return on that investment. We gained global value share in our toothpaste business for the third year in a row. We also gained global value market share in the manual toothbrush business as well as in pet nutrition in the U.S.. The Colgate brand is in almost 60% of the world's homes, making it the number one most penetrated brand in the world. We continue to have strong number one or number two global market shares across almost all of our categories. The investment in the business enabled us to launch many new products in 2024, many of which were differentiated by their focus on science.
We believe we have the best science in many of our categories, and when we combine that science with deep consumer insights, we create highly desired products that drive growth and market share. 2024 brought exciting news to our new Colgate Total franchise. New Colgate Total Active Prevention Toothpaste has a breakthrough, clinically proven, and proprietary formula that optimizes the performance of the active ingredients, helping consumers prevent many common oral care problems before they become an issue. Colgate Total's new regimen, which includes a new toothbrush with dual-bristle technology and a mouth rinse, offers a comprehensive solution backed by world-class science that provides consumers with everyday preventative oral care. One way we're increasing household penetration for Hill's is by understanding pet parents' concerns and addressing their needs. We noticed that more pet parents were searching Google for information on stomach sensitivities for puppies and kittens.
We already had Hill's Science Diet Sensitive Stomach and Skin products for adult dogs and cats, and we have now launched puppy and kitten versions of these diets in both wet and dry varieties. We are bringing Hill's scientific expertise and innovation to consumers who may be brand new to our pet nutrition category. Some further examples of innovation are EltaMD UV Skin Recovery, a lightweight 100% mineral sunscreen that is clinically proven to alleviate symptoms of skin sensitivity with a 52% reduction in visible redness. Sanex Dermotherapy Body Wash with its patented amino acid complex and Fabuloso 2X concentrated formula, which has twice as many uses in the same bottle for 50% less plastic per usage. This product continues to drive strong market share gains for the brand here in the U.S..
Innovation is just one of the capabilities that we're scaling across the organization to drive our sales growth, margin performance, and total shareholder return. Here are some examples of how we are combining our capabilities in digital, data, analytics, and AI to drive growth and productivity in everything that we do. We've significantly improved the way we buy digital media and the way we track it. To truly optimize our spending, we need to operate at the convergence of digital, data, and analytics. We need to be able to track our spending across multiple platforms and analyze it in real time to optimize our returns. We've worked with a partner on a digital tool to standardize our metrics and harmonize this data.
We're now using this tool on 81% of our digital spending in key markets so we can quickly determine which channels and platforms are driving our business and then adjust our spending to maximize ROI. Another area ripe for improvement through these new capabilities is our promotional spending with our retail partners. We are building custom models for each retailer that use machine learning and prescriptive analytics to run billions of scenarios to optimize volume, revenue, or profit. We know that everyone is excited about the potential for AI and how it can transform business. One of the best ways we use generative AI is to develop concepts for new products. By using AI to develop concepts, we can create and test more ideas in a fraction of the time it used to take.
We have built a proprietary system powered by Google's language and image model that allows us to create new product concepts in seconds. A key area of strength of our company is our culture, which is defined by our purpose, values, and leadership principles, and is driven by all Colgate-Palmolive people through what we call the power of we. I believe what differentiates us is our constancy of purpose to reimagine a healthier future for all people and our values. We are caring, inclusive, and courageous. We strive to achieve our purpose and live our values every day. You see our purpose and values in action in the products we make and the programs we support. Programs like Colgate Bright Smiles, Bright Futures, which is the world's largest oral health program focused on teaching young people about proper oral hygiene habits.
Another example is our Hill's Food, Shelter, and Love program that works with shelters to promote pet adoptions. We continue to lead in recyclable tubes around the world, helping to limit our exposure to plastics, fees, and driving scale advantages across our supply chain with this innovative technology. We have more true certifications for zero waste than any other company in the world, which helps drive efficiency. While 2025 is presenting its challenges in terms of market and foreign exchange volatility and economic uncertainty, with the strength of our financial model and the investment behind building and scaling our capabilities, I remain confident that Colgate-Palmolive's best days lie ahead. We will continue to focus on our long-term by investing in our brands and capabilities while managing through the short term. I'll finish my remarks with an acknowledgment of the Colgate-Palmolive team.
All of these results would not be possible without the hard work and dedication of Colgate people around the globe. Now, I'll turn to John Faucher from our investor relations group for the question-and-answer session.
Two, one. Good morning. This is John Faucher, Chief Investor Relations Officer and EVP for Mergers and Acquisitions. We'll start with the first question, which is about GenAI and how we're using it. Growing applications of new GenAI tools are impacting the majority of industries across the full spectrum of their activities. What is Colgate's investment strategy for AI? What are the priority areas for 2025 and 2026?
Good morning, and thanks for the question. As you saw in our prepared remarks, we're very excited about the development of AI and how it's improving our business. It will be an important focus to help us deliver on our strategy, and independent surveys in the market pleasingly show that we are making strong progress in terms of how our AI strategy is being implemented around the world. Recently, we launched an internal AI hub to over 5,000 employees around the world using the world's leading generative AI models to ensure that our people have secure access to the most advanced AI capabilities. This is allowing them to be more effective and efficient in their work. We've also selected two initial areas of focus that I just talked about. The first is marketing and content.
AI will significantly enhance consumer engagement, allowing us to optimize real-time content by providing compelling visuals and storytelling. Importantly, as you heard me talk about earlier, product innovation will be a key area that we're focused on. AI is helping us accelerate the pace of our innovation and the processes we use to deploy new products faster, get insights into the market sooner, and allow us to rapid prototype at an accelerated pace. A lot of exciting stuff more to come.
Thanks, Noel. The next question is, is democracy good for business?
Interesting question. We believe that companies are better able to thrive in predictable environments that encourage a focus on long-term strategy and performance and value creation, whether that's in terms of investing in our people, our brands, our innovation, or how we deploy capital around the world.
Thanks, Noel. The next question is about the composition of the board of directors. Why do you need 10 directors? Keep three, let the rest get a job. You are like the federal government, overstaffed.
Yeah, thanks for the question. Pleasingly, we have a really strong board of directors, and we consistently receive positive feedback from our investors for the construction and composition of our board. Importantly, our management team relies heavily on the board of directors for their guidance and advice on a number of different topics, from strategy to innovation to capital structure to risk management and governance, and, importantly, on mergers and acquisitions. In fact, just two weeks ago, we had three of our directors in talking to us about AI, sharing our strategy, and giving us good insights on how to further develop that strategy. We think it's important that our directors have a range of skills and experiences, and backgrounds to enable the board to help guide our company in the most effective way possible, and the size of our board provides this
Thanks, Noel. The next question is about the annual stockholder meeting, and we actually received a couple of questions about whether we are going to restart in-person stockholder meetings.
Again, thank you. We believe the virtual shareholder meetings allow for a greater level of participation for all of our stakeholders around the world. They also are more efficient and productive for the organization to put together. With that said, we have not yet made a decision on the format of future meetings. We will continue to evaluate what works best on a year-to-year basis.
Thanks, Noel. The next question is on innovation. Please give two examples of product innovation.
Yeah, I think as you saw in my prepared remarks, we have a lot of exciting, compelling innovation coming to market. We talked about Colgate Total, which is a clinically proven new formula for us that allows us to elevate the effectiveness of stannous fluoride to help prevent problems before they start, which is a very important area and a trend in the marketplace that really taps into the need for more prevention-oriented products. A second one would be EltaMD UV Skin Recovery. Just in time for the summer, it is more than just a sunscreen. This is allowing you to help your skin recover, particularly those that suffer from redness. You heard me make the claim that we are able to make that 52% less redness when you use this product, providing superior UV protection at the same time providing skincare benefits.
Talked about Fabuloso 2X formula, 50% less plastic and the same efficacy and fragrance that consumers love. We are excited about the new products we are bringing to the market this year.
Thanks. Noel, the next question is on inflation as well as on tariffs. How is inflation affecting Colgate-Palmolive's business, and have the tariffs created any issues for Colgate-Palmolive?
Thus far, we see inflation slightly below where we were last year, but we will continue to monitor that very closely moving forward. In the area of tariffs, we spent the last eight years building a more flexible supply chain around the world. As part of our overall supply chain strategy, we have lowered our supply chain exposure to certain markets, including China. We also primarily aim to have local manufacturing, as you can imagine, as the cost of shipping many of our products along long distances can be very, very expensive for us. Over the last five years, in fact, we have invested almost $2 billion in our US-based supply chain. I talked about tariffs on our Q1 earnings call.
We announced an estimated $200 million impact from tariffs that are in effect right now, predominantly tariffs on goods and raw materials coming out of China into the U.S. and from the U.S. into China. Rest assured, we're doing everything we can to mitigate those costs.
Noel, the next question is about the dividend. Will the increases in the dividend be larger in the future than the minimal increases in the past?
Thanks. As you saw in the prepared remarks, we're so pleased on the fact that we've continued to pay and increase the dividend for over 62 years. That decision is taken by the board of directors and is based on a myriad of different factors. I will say the health of our company continues to be very strong, but that decision will be taken at the appropriate time.
Noel, thanks very much. That is the last question.
Thanks, John. I want to thank everyone for attending the webcast this morning. With that, we are going to close our meeting. I want to thank you for your attendance and for your interest in our company and the great questions. I believe our company is well positioned to deliver on our growth strategies while also making progress on our commitments to all of our stakeholders, and I hope you do as well. We look forward to talking with you again next year. With Mother's Day this Sunday, I wanted to wish a happy Mother's Day to my mother, to all the other mothers, grandmothers, and other caregivers joining us today. Thank you and goodbye.