Hill’s Pet Nutrition expands wet pet food capacity, raises pricing in Q1

NEW YORK — Continued supply chain impacts, including inflated logistics and raw material costs, impacted Colgate-Palmolive’s profitability in the first quarter of fiscal 2022. Noel Wallace, chairman, president and chief executive officer of the company, said he expects the situation to continue “for the next several quarters.”

The company’s pet food segment, Hill’s Pet Nutrition, posted year-over-year sales growth of 11% to $872 million in the first quarter, with organic sales up 13%. Operating profit was $204 million for the Hill’s business, down 5% from year-ago operating profit and down 400 basis points as a percentage of net sales.

Colgate-Palmolive attributed the decline in operating profit to higher-than-expected costs for raw materials, packaging materials and overhead expenses, particularly for fats, oils and logistics, Wallace said in the company’s first quarter earnings call on April 29.

“…The biggest impact has come in the area that we call fats and oils,” he noted. “…This has historically been our second biggest area of raw material spend… These are used in every category we compete in, and we expect a more than 60% [cost] increase across fats and oils this year.”

To mitigate these rising costs, the company implemented a 9% increase in pricing across its Hill’s portfolio and decreased ad spending. The company reported similar supply chain and cost inflation impacts in the fourth quarter of fiscal 2021.

Organic sales growth gains for Hill’s were driven by business in the United States and Europe, the company stated. The pet segment posted the highest growth rate for net sales and organic net sales over the first quarter, as well as one of the smallest declines in operating profit across the company’s regional business segments.

Globally, Hill’s Pet Nutrition grew net sales and organic sales at mid-single-digit rates in all geographic regions except Australia, where volumes were impacted by supply chain disruptions. Volume in the United States grew at a high-single-digit rate.

Hill’s Pet Nutrition currently accounts for 20% of Colgate-Palmolive’s total revenue.

In the company’s prepared remarks, Colgate-Palmolive announced its acquisition of certain manufacturing assets of Nutriamo, a wet pet food manufacturing business based in Italy, on April 28. The acquisition will support Hill’s Pet Nutrition as it looks to “meet untapped demand” for wet pet food formulations in Europe.

“This acquisition represents an important step in our global supply chain strategy to continue meeting the growing demand by pet parents for our science-based nutrition,” said John Hazlin, president and chief executive officer of Hill’s Pet Nutrition. “We will move quickly to increase our capacity to produce canned food and the volume will grow over time as we are able to manufacture more of our products in the facility.”

At the Consumer Analyst Group of New York (CAGNY) 2022 Virtual Conference, Wallace shared the company’s plans to rebrand its Prescription Diet line in 2022, which will feature reformulations, new package designs and a stronger veterinary outreach for the brand. The relaunch began in Europe in the first quarter and will roll out to the United States in the second quarter.

“…While the pet food category is obviously benefiting from underlying trends like the humanization of pets and premiumization, we believe it is also continuing to swing back toward science and expertise, and Hill’s is perfectly positioned to take advantage of this trend,” Wallace said.

Total net sales for Colgate-Palmolive in the first quarter totaled $4.40 billion, up 1.5% year-over-year. Gross profit was $1.83 billion, up 9.7% from year-ago profit. Overall operating profit decreased 14.3% to $860 million.

The company reaffirmed its full-year 2022 guidance, expecting net sales growth on the higher end of its previous 1% to 4% range, organic sales growth between 4% and 6%, and a decline in gross profit margin.

“As we look around the world, there is still much uncertainty stemming from the COVID-19 pandemic, supply chain disruptions, the war in Ukraine and volatility in consumer demand and currencies,” Wallace said. “Despite this environment, we are encouraged by our growth momentum, the strength of our innovation pipeline and the progress we are making on our digital transformation, all of which add to our confidence that we have the right strategies in place to continue to deliver sustainable, profitable growth over the long term.”

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