NEW YORK — Recent acquisitions will allow Hill’s Pet Nutrition to expand its capacity and deliver new innovation to its Prescription Diet portfolio, according to parent company Colgate-Palmolive’s fourth-quarter and full-year 2022 earnings report.
Hill’s Pet Nutrition posted the highest year-over-year net sales growth for Colgate-Palmolive, compared to the company’s other segments, which are separated by geographic region: North America, Latin America, Europe, Asia Pacific, and Africa/Eurasia. The pet nutrition business made up 22.9% of Colgate-Palmolive’s total net sales in the fourth quarter and 20.7% of the company’s total net sales in 2022.
Net sales for Hill’s Pet Nutrition reached $1.06 billion in the fourth quarter of 2022, up 19.8% year-over-year from $885 million. Full year net sales for Hill’s Pet Nutrition in 2022 topped $3.71 billion, up 12.1% from $3.31 billion in 2021.
Operating profit for the pet nutrition business was down 3.3%, from $241 million in the fourth quarter of 2021 to $233 million in the fourth quarter of 2022. Full year operating profit for the segment fell 5.7%, from $901 million in 2021 to $850 million in 2022.
Pricing for Hill’s Pet Nutrition increased 13.5% over the fourth quarter, according to the company.
For the fourth quarter, Colgate-Palmolive clocked year-over-year organic sales growth for Hill’s Pet Nutrition at 14%, with organic volume up 0.5% year-over-year. For the full year, organic sales growth for the segment was reported at 13%, with organic volume up 1.5%. Foreign exchange rates negatively impacted the business by 3.5% in both the fourth quarter and full year.
According to the prepared management remarks published in tandem with Colgate-Palmolive’s fourth-quarter and full-year earnings report, volume added through Hill’s recent pet food acquisitions — including its purchase of three former Red Collar Pet Foods facilities in South Carolina, Oklahoma and Ohio — added 1.5% to net sales over the fourth quarter and 0.5% to net sales for the full year.
“Between the acquisition capital and capital expenditure, we are investing over $1.5 billion to fund capacity expansion to sustain the growth behind our Hill’s Science Diet and Hill’s Prescription Diet brands,” Colgate-Palmolive stated.
“More importantly, we were able to transition additional Hill’s volume to these plants, allowing us to meet greater customer and consumer demand while beginning to lower the capacity utilization at our existing plants,” the company stated. “We will continue to transition more Hill’s volume to these facilities in the next several quarters, which will lower both the topline and gross margin impact from the acquisitions, while helping to increase volume growth at Hill’s.”
Supply chain improvements are among the benefits reaped from Hill’s recent pet food facility acquisitions, which positively contributed 9.5% to the segment’s fourth quarter performance and Colgate-Palmolive’s overall volume performance over the fourth quarter, according to the company.
“Our combined financial resources provide us the flexibility to reinvest in our portfolio or pursue value-enhancing acquisitions like our pet food acquisitions, which enables us to drive faster growth,” said Noel Wallace, chairman, chief executive officer and president of Colgate-Palmolive, in the company’s fourth-quarter and full-year earnings call on Jan. 27.
However, the company expects exacerbated costs along its supply chain in 2023, particularly for raw materials and packaging materials. The company noted its gross margin performance in the fourth quarter was impacted by “higher manufacturing variances and start-up costs at Hill’s,” along with cost increases for agricultural inputs and raw materials, natural gas, and decreased net sales for its skin health business.
“We expect raw and packaging material costs to increase in 2023 by several hundred million dollars, predominantly in the first half of the year, driven by agriculture costs, which is far below the roughly $1.3 billion impact we saw in 2022,” the company stated.
The company noted plans to increase its advertising investment for Hill’s in 2023, and teased the opening of its new wet pet food facility in Tonganoxie, Kan., which was first announced in June 2021 and is expected to begin shipping product in the second half of 2023.
“Between the acquisition capital and capital expenditure, we are investing over $1.5 billion to fund capacity expansion to sustain the growth behind our Hill’s Science Diet and Hill’s Prescription Diet brands,” the company stated.
Colgate-Palmolive highlighted its Prescription Diet Derm Complete line, which it debuted in the third quarter of 2022, as a top performer in the fourth quarter. The company also shared plans to launch a new line under its Prescription Diet moniker. ONC Care will launch first in the United States market in March 2023, with a global rollout to follow.
“Prescription Diet Derm Complete continued to drive strong growth,” the company stated. “This breakthrough innovation is clinically shown to address both environmental and food sensitivities in dogs and is growing market share in the US veterinary clinic market. Hill’s also recently announced the launch of Prescription Diet ONC Care in the United States. This groundbreaking new formulation is designed to encourage eating and provide high-quality nutrition for cats and dogs with cancer.”
Colgate-Palmolive updated its full year 2023 guidance, in which it expects net sales growth between 2% and 5%, accounting for gains from pet food acquisitions and losses from foreign exchange. The company also expects to grow its gross profit margin year-over-year.
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