NEW YORK – Hill’s Pet Nutrition posted the highest year-over-year sales growth for Colgate-Palmolive in the first quarter, despite continued raw material inflation. Colgate-Palmolive shared its earnings performance on April 28 for the three-month period ended March 31.
Net sales of the company’s Hill’s Pet Nutrition business increased 21.5% to $1.06 billion in the first quarter. Organic sales rose 14%, driven by growth in the United States and Europe. Operating profit fell 10% to $183 million and accounted for 17.2% of the division’s total net sales. Colgate-Palmolive attributed declines in operating profit to “significantly higher costs of raw materials and packaging materials,” along with impacts from recent pet food acquisitions and increased advertising investments.
Noel Wallace, chairman, president and chief executive officer at Colgate-Palmolive, gave more details on the narrowing of operating profit, citing impacts from agricultural commodity costs, the integration of several new facilities – including three Red Collar dry pet food plants and the acquisition . of wet pet food manufacturing assets from Nutriamo, an Italian producer, in mid-2022.
In addition to those capacity expansions, Hill’s new wet pet food facility in Tonganoxie, Kan., first announced in June 2021, is expected to break ground in the second half of 2023.
“Setting up that plant will be strategic for the continued growth of that business. That will happen towards the tail end of the third quarter,” Wallace said. “We expect to have some start-up costs associated with that as we go through moving that facility. But overall, we should see that benefit for us moving into 2024, especially at the line edge because our business is wet margin-creditor for us and it will certainly benefit Hill’s business in the long term.”
Hill’s prices increased 11.5% over the quarter, offsetting the company’s operating profit declines. Growth financing initiatives and the company’s lowered overhead costs also offset reduced operating profit, according to the company.
During the Q&A session of the company’s first quarter earnings call on April 28, Chief Financial Officer Stanley Sutula noted that the company has experienced inflation levels in the $300 million to $400 million range for commodities, and that inflation in agricultural commodities mainly into his Hill’s. Pet Nutrition Business. He noted that the company does not expect relief on those prices during the year.
Sutula shared the many global conditions that led to this inflation, including rising prices for corn, wheat and soybeans, as well as the risk of drought in the United States and global tensions with the conflict between Russia and Ukraine. Protein ingredient prices also put pressure on Hill’s business, he noted.
“The pricing we’ve built over the last two years helps give us the flexibility to fund increased brand investment to support our prices, build brand health, and drive volume and household exposure,” said Wallace during the earnings call. “We know the competitive environment will be tough, but we have a brand portfolio built for times like these, and we look forward to driving growth and market share performance now.”
Hill’s Pet Nutrition accounted for 22% of Colgate-Palmolive’s total sales in the first quarter.
The company highlighted two new innovations in its Prescription Diet portfolio that are expected to drive growth in 2023 — ONC Care and Derm Complete. Hill’s Prescription Diet ONC Care is designed for dogs and cats with cancer, with the aim of encouraging food intake through quality nutrition. These diets were launched in the US market in March 2023.
Hill’s Prescription Diet Derm Complete, first introduced in the third quarter of 2022, represents a “breakthrough innovation” that targets dogs with food and environmental sensitivities. The diets are supported by several clinical trials and can be combined with wearable technology to measure scratching and sleep behavior. Hill’s Pet Nutrition recently added a puppy formula to this portfolio.
“Despite continued pressure from raw material and packaging material costs during the quarter, the gross profit margin improved compared to the fourth quarter of 2022, which helped fund a 14% increase in advertising to support our strong pricing and innovation in every category,” Wallace said. “We expect to drive further gross margin improvements in the balance of the year through continued strong pricing and the benefits of growth-financing and other productivity initiatives.
“Looking ahead, while we still see uncertainty in the global operating environment, particularly in the latter half of the year, we feel it is capable of delivering on our increased sales and earnings expectations for 2023 and driving value to our stakeholders.”
Overall, Colgate-Palmolive reported net sales of $4.77 billion in the first quarter, up 8.5% year over year. Organic sales were up 10% and total price was up 12%. Total operating profit for the quarter was $909 million, up 5.7% year over year.
The company shared its guidance for the full year 2023, including expected net sales growth between 3% and 6%, organic sales growth between 4% and 6%, and earnings per share (EPS) increases that represents double-digit growth on a GAAP basis and mid-single-digit growth on a base business basis. The company also shared that it expects its gross profit margin and advertising investment to increase during the year.
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