NEW YORK — The third quarter was a sweep for Hill’s Pet Nutrition in terms of net sales growth, volume growth and pricing. The pet food manufacturing business posted the highest growth rates in these categories compared to parent company Colgate-Palmolive’s other divisions.
For the three months ended Sept. 30, Hill’s reported 21.5% net sales growth to $1.06 billion and organic sales growth of 15%. Volume was up 9% and pricing rose 12% over the quarter. Nine-month sales for the division totaled $3.18 billion with an operating profit of $575 million, down from $617 million in the first nine months of fiscal 2022.
Strong performance by the pet food business in Q3 was supported by organic sales growth in the United States and Europe, according to the company. Organic volume growth also benefitted the segment’s performance in the United States, Latin America, Japan and Asia, showing improvements from the second quarter, according to the company. Hill’s made up 22% of Colgate-Palmolive’s total sales in the third quarter.
However, cost inflation continues to impact the business. Operating profit was flat at $201 million in the third quarter, and operating profit as a percentage of net sales was down 410 basis points to 19%, which was attributed to higher raw and packaging material costs and unfavorable mix due to recent private label acquisitions.
Despite continued raw material pressures, Hill’s Pet Nutrition continues to amplify its production capacity. Most recently, the company cut the ribbon at a new state-of-the-art “smart” facility in Tonganoxie, Kan., which will produce more than 170 varieties of wet pet food for its Science Diet and Prescription Diet brands. The facility is equipped with AI, automation and robotics, enhanced food safety systems, and end-to-end digital monitoring of processes and safety.
The company has been ramping its production capacity for the Hill’s business since mid-last year, first with the acquisition of wet pet food manufacturing assets from Italy-based Nutriamo in May 2022, followed by the purchase of three dry pet food manufacturing plants formerly owned by Red Collar Pet Foods in October 2022.
“We have a significant amount of cost still moving through the P&L on getting our new facilities ramped up,” said Noel Wallace, chairman, president and chief executive officer at Colgate-Palmolive, in the company’s third-quarter earnings call on Oct. 27. “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.”
The pet food business is also riding the tailwinds of recent innovation, including Hill’s Prescription Diet ONC Care, a diet launched in March and formulated to support nutrition for dogs and cats with cancer, and Hill’s Science Diet Oral Care Small & Mini, formulated to support oral health in smaller breed dogs.
“We see opportunities continued in the Prescription Diet,” Wallace said. “Our study shows 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.”
Other recent new product launches for Hill’s include a line of dog and cat foods under its Science Diet moniker formulated with responsibly sourced and alternative proteins. New diets in the line include Science Diet Sensitive Stomach & Skin with MSC-certified wild-caught Alaskan pollock and insect-based protein.
Wallace described “very strong volume and value share growth in pet specialty and neighborhood pets” during the Q&A segment of its earnings call.
“We’re one of the fastest-growing brands in both those retail environments, so we’re pleased with the strategy of bringing innovation and the increased advertising support we’re bringing into the business,” he added.
Overall, Colgate-Palmolive reported $4.92 billion in sales for the third quarter with an operating profit of 20.9%. This takes the company’s nine-month revenue to $14.51 billion.
“We are very pleased to have delivered another quarter of strong top and bottom line growth,” Wallace stated. “…We are particularly pleased with the quality of our results this quarter on top of our strong first half results. This was our third quarter of sequential improvement in gross profit margin and our second quarter in a row delivering double-digit operating profit growth along with a double-digit increase in advertising spending. Strong investment levels behind brand-building activities and innovation should continue in the remainder of the year as we continue to work towards balanced organic sales growth.”
Following its third-quarter performance, Colgate-Palmolive upped its net and organic sales growth projections for the full year 2023, now expecting net sales growth between 6% and 8% and organic sales growth between 7% and 8%. Net sales growth in 2023 will be supported by the company’s recent pet food acquisitions.
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