Strategic Performance Drivers
Performance was anchored by accelerated volume growth in emerging markets, particularly within Asia Pacific, where strong global brands provide significant scale advantages.
Management attributed the broad-based growth to sustained high levels of advertising investment and an omnichannel demand generation model that maintains brand salience.
The company is utilizing Revenue Growth Management (RGM) and AI-driven promotional tools to maintain profit growth despite a volatile macroeconomic environment.
Strategic interventions in the Hawley & Hazel business in China are beginning to pay dividends through accelerated innovation and improved omnichannel execution.
North America performance remained sluggish due to delayed shelf resets and late-quarter innovation launches, though management expects sequential improvement through a strategy reset.
The Hill’s Pet Nutrition business significantly outperformed a flat market, driven by double-digit growth in the Prescription Diet segment and improved supply chain flexibility.
2026 Outlook and Strategic Assumptions
Guidance assumes significant cost headwinds, including approximately $300 million in incremental raw material and logistics costs driven by oil prices projected at $110 per barrel.
The company lowered its gross margin expectations for the year to ‘down’ versus the prior ‘up’ outlook, reflecting the impact of resin and petrochemical inflation.
Management expects the negative impact from the private label pet food exit to taper off to 20 to 30 basis points in Q2 and vanish by the second half of the year.
Future pricing actions will be increasingly innovation-led, focusing on premium value propositions to justify higher price points to consumers facing compounded inflation.
The Strategic Growth and Productivity Program (SGPP) is expected to deliver $200 million to $300 million in total savings over the term of the program, with the majority of these savings occurring in 2027 and 2028.
Operational Risks and Structural Changes
The SGPP program scope was expanded to $550 million as teams identified more opportunities to simplify operations and enhance efficiency, with the program now expected to generate $200 million to $300 million in savings.
North America gross margins are currently pressured by a lack of tariff relief compared to the prior year, though this impact is expected to normalize as the year progresses.
Logistics costs are projected to rise nearly 10%, impacting both ocean and land freight, which will be reflected in SG&A rather than gross margin.
Management flagged potential consumer sensitivity to compounded inflation and high energy prices over the next 6 to 9 months as a key variable to monitor.
