Hill’s Pet Nutrition net sales increased in the first quarter of 2023. Nevertheless, profits declined. The pet food company followed a similar pattern in the final quarter of 2022. Overall, Hill’s Pet Nutrition sales made up 22% of parent company Colgate-Palmolive’s US$909 million in sales for the quarter ended March 31.

“The decrease in operating profit as a percentage of net sales was primarily due to significantly higher raw and packaging material costs, unfavorable mix primarily due to private label sales resulting from the previously disclosed acquisitions of pet food businesses and increased advertising investment, partially offset by higher pricing, lower overhead expenses and cost savings from the company’s funding-the-growth initiatives,” executives wrote in a press release.

The United States and Europe led Hill’s organic sales growth. In the first quarter of 2023, Hill’s net sales reached US$1,061 million. Those sales were up 17.2% from the same quarter last year when sales were US$872 million. Hill’s operating profit in Q1 2023 was US$183 million a 10% decline compared to the first quarter of 2022.

“Hill’s delivered another double-digit net and organic sales growth quarter despite a difficult comparison,” Colgate-Palmolive executives said in a press release. “Organic sales grew 14.0% in the quarter, as organic volume growth accelerated to 2.5% benefitting from the capacity additions from our recently acquired pet food businesses; volume growth was led by the U.S., which delivered mid-single-digit volume growth.

“Pricing grew 11.5% in the quarter as we looked to offset the continued pressure from higher raw and packaging material costs. Operating margin at Hill’s remained under pressure in the quarter due to the impact of our acquired pet food businesses, the impact of significant cost increases on Hill’s gross margin and a double-digit increase in advertising support.”

Hill’s Pet Nutrition acquisitions affected profitability

In May 2022, Hill's Pet Nutrition completed the acquisition of the manufacturing facility of Nutriamo, an Italy-based canned pet food manufacturer. The acquisition was Hill's first canned pet food facility in Europe.

In August 2022, Colgate-Palmolive announced plans to purchase three dry pet food manufacturing plants in the U.S. from Red Collar Pet Foods for US$700 million to support the global growth of its Hill’s Pet Nutrition business.

“As we look to benefit from our increased capacity, both our acquired facilities and our new wet food manufacturing facility in the U.S. that will open in the third quarter, we are investing to drive additional volume growth.”

“We still expect raw and packaging material costs to increase in 2023 by several hundred million dollars, primarily driven by agricultural costs at Hill’s and specialty chemicals.”