2027 Outlook and Cost Environment
Q: Peter Galbo of Bank of America asked for early thoughts on 2027 and the puts and takes regarding the cost environment.
A: Noel Wallace stated they will not provide 2027 guidance until the first quarter of next year, but noted they are focused on controlling levers like pricing and productivity to offset the stubborn cost environment.
Gross Margin and Advertising ROI
Q: Dara Mohsenian of Morgan Stanley asked about the drivers of gross margin upside, confidence in raising guidance, and the ROI on advertising spend.
A: Noel Wallace noted that pricing, which was 200 basis points in the third quarter, and premium innovation drove margins. Stan Sutula explained that while material costs were a 300 basis point headwind, productivity programs offset this. Wallace added that ad spend ROI remains strong and they will continue to optimize it using AI tools.
Hill's Pet Nutrition Performance
Q: Peter Grom of UBS asked about Hill's organic sales growth, category trends, and future growth expectations.
A: Noel Wallace highlighted 6.5% organic sales growth excluding private label, driven by cat and wet food segments and therapeutic diets. He noted that while the category is sluggish, they are seeing good market share growth and will continue to invest in advertising.
SG&A Efficiencies
Q: Lauren Lieberman of Barclays asked about the 90 basis point SG&A efficiency and if it represents a new run rate.
A: Stan Sutula attributed the efficiency to a mix of underlying productivity and the SGPP program, noting that they will continue to reinvest savings into the business while also taking some to the bottom line.
Latin America Performance
Q: Steve Powers of Deutsche Bank asked about Latin America, specifically the slowdown in Mexico and momentum in Brazil.
A: Noel Wallace reported 6% organic growth in the region, with Brazil up double digits. He acknowledged Mexico faced consumer and retailer challenges but expects those to be behind them by 2027.
U.S. Business and Category Trends
Q: Filippo Falorni of Citi asked about U.S. toothpaste improvement and the category pricing and promotional environment.
A: Noel Wallace explained they are repowering their marketing model with a focus on premium innovation and restructuring their go-to-market approach. He expects competitors will also need to take pricing to offset cost pressures.
Global Consumption Trends
Q: Bonnie Herzog of Goldman Sachs asked about consumption trends, market pressures, and category growth expectations.
A: Noel Wallace sees global category growth at 1.5% to 3%, with emerging markets at 3% to 5%. He noted China is challenged, India is strong, and North America is seeing some pressure but slight improvement.
Hill's Sustainability and Margins
Q: Olivia Tong of Raymond James asked about the sustainability of Hill's growth and the slight operating margin decline.
A: Noel Wallace emphasized the focus on growing segments like cat and wet food. Stan Sutula clarified that the slight margin decline reflects investments in advertising and the Fresh product launch, while total company EBIT margins are up.
North America Inventory and APAC Momentum
Q: Chris Carey of Wells Fargo asked about destocking in North America and the durability of APAC growth.
A: Noel Wallace confirmed no meaningful destocking in North America. Regarding Asia, he noted strong performance in India and China, with the latter benefiting from premium innovation and AI-driven content.
Cost Curves and Pricing
Q: Kaumil Gajrawala of Jefferies asked about cost curves and if pricing is ahead of cost pressure.
A: Stan Sutula stated they are locked in for Q4 but see continued volatility. He emphasized that they focus on what they can control, like productivity and RGM, rather than predicting future commodity costs.
Hill's Strategy and Emerging Markets
Q: Robert Ottenstein of Evercore ISI asked about Hill's growth acceleration and strategy in smaller emerging markets like Africa.
A: Noel Wallace reiterated that Hill's is focused on long-term durable growth. For Africa and other emerging markets, he noted they are leveraging European innovation and optimizing distribution to drive growth.
U.S. Improvement and European Pricing
Q: Andrea Teixeira of JPMorgan asked about U.S. toothpaste market share progress and pricing in Europe.
A: Noel Wallace stated U.S. improvement is a work in process that will translate into better portfolio performance in 2027. For Europe, he noted they are successfully executing premiumization through effective omni-demand generation.
Pricing Composition
Q: Michael Lavery of Piper Sandler asked about the composition of pricing and future expectations.
A: Noel Wallace explained they use multiple levers like price pack architecture and premium innovation. He noted that pricing is market and category dependent and they will continue to be thoughtful about execution.
Cost Inflation and Pricing Timing
Q: Robert Moskow of TD Cowen asked for absolute cost inflation numbers and if January is a typical time for list price increases.
A: Stan Sutula said cost inflation is roughly in the $300 million range. Noel Wallace added that pricing is market dependent and they will continue to manage it thoughtfully.
China Learnings in the U.S.
Q: Edward Lewis of Rothschild & Co asked how learnings from China can be applied to the U.S.
A: Noel Wallace confirmed they are actively translating capabilities from China, such as social commerce and AI-driven content, to the U.S. and other divisions.
