The Procter & Gamble Company (PG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates solid financial performance with increased core operating margin and strong EPS growth. The Q&A revealed management's confidence in leadership transition, strategic restructuring, and innovation plans. Although there are challenges like tariffs and slower category growth, P&G's proactive strategies and shareholder returns are likely to have a positive impact. The overall sentiment is positive, but not strong, due to uncertainties in guidance and market conditions.
Key Financial Performance
Organic Sales Growth 2% for the year, with volume growth contributing 1 point and price/mix adding 1 point. Growth was broad-based across categories and regions, with 9 out of 10 product categories growing. Baby Care was the only category down, with low single-digit decline. Reasons include volatile macroeconomic, geopolitical, and consumer dynamics.
Earnings Per Share (EPS) $6.83, up 4% for the year. Core gross margin declined 40 basis points, while core operating margin increased 50 basis points. Productivity improvements of nearly $2.7 billion enabled increased investment in superior products and brand communication.
Free Cash Flow Productivity 87% for the year. The company returned $16 billion to shareholders, including nearly $10 billion in dividends and $6.5 billion in share repurchases.
E-commerce Sales Increased 12%, now representing 19% of total company sales. This growth reflects the shift in consumer purchasing behavior towards online platforms.
Core Operating Margin Increased 50 basis points for the year, supported by $2.7 billion in productivity improvements across cost of goods sold and SG&A.
Fourth Quarter Organic Sales Growth 2%, with volume in line with the prior year and pricing/mix each up 1%. Growth was broad-based across categories and regions, with 9 out of 10 product categories holding or growing organic sales. Baby Care was the only category down, with low single-digit decline.
Fourth Quarter Core EPS $1.48, up 6% versus the prior year. On a currency-neutral basis, core EPS increased 5%. These results include a $0.03 impact from tariffs.
Fourth Quarter Free Cash Flow Productivity 110%. The company returned $3.3 billion to shareholders, including $2.6 billion in dividends and $700 million in share repurchases.
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Operating Highlights
Pampers in China: Pampers grew organic sales nearly 20% in China and increased value share by over 2 points, becoming the best diaper for newborns among moms under 30.
SK-II LXP: Launched a supercharged product line with the highest concentration of PITERA, positioned in the super-premium segment, driving brand equity and growth in China.
Pantene in Latin America: Pantene's deep conditioning treatment collection led category growth in Mexico, with organic sales up mid-teens and value share growth over 1.5 points.
Swiffer Sweep and Mop Deluxe: Introduced a sturdier stick with 2-in-1 cleaning capabilities, achieving 6% new users and 30% incremental sales to the Swiffer Sweeper starter kit business.
Align digestive wellness: Launched new products addressing bloating and digestion, accelerating share growth with innovative 3-in-1 Biotic.
Tide evo: Developed a new laundry detergent with superior cleaning performance in a recyclable package, showing high incremental sales in test markets.
E-commerce growth: E-commerce sales increased 12%, now representing 19% of total company sales.
Regional performance: Focus Markets grew organic sales 2%, with North America up 2% and Europe Focus Markets up 3%. Greater China improved sequentially, growing 2% in the most recent quarter.
Enterprise Markets: Enterprise Markets grew 3%, led by Latin America with 6% organic sales growth in the quarter, including double-digit growth in Mexico.
Productivity improvements: Achieved nearly $2.7 billion in productivity improvements across cost of goods sold and SG&A, enabling increased investment in superior products and brand communication.
Restructuring program: Announced a 2-year restructuring program focusing on portfolio simplification, supply chain optimization, and organization design, including reducing up to 7,000 non-manufacturing roles.
Portfolio adjustments: Streamlining product lines in Feminine Care, Oral Care, Fabric Care, and Grooming in Asia and discontinuing operations in Bangladesh to focus on higher-value opportunities.
Innovation superiority: Focused on integrated superiority across product, package, brand communication, retail execution, and value to drive market growth and share gains.
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Risk or Challenges
Macroeconomic and Geopolitical Volatility: The company faced volatile macroeconomic, geopolitical, and consumer dynamics, resulting in market-level headwinds that were not anticipated at the start of the fiscal year. This includes heightened consumer anxiety with tariffs, inflation, interest rates, political and social divisiveness, and immigration and employment status uncertainty.
Tariffs and Trade Barriers: The company expects $1 billion in higher costs from tariffs in fiscal '26, including impacts from materials and products imported from China, Canada, and other regions. Tariffs alone are a 5-point headwind to core EPS growth.
Market Growth and Consumer Confidence: Lower category growth and unpredictable geopolitical environments have impacted market growth. Economic and consumer confidence impacts, particularly in Greater China, are being closely monitored.
Restructuring Program Risks: The company announced a 2-year restructuring program, including portfolio simplifications, supply chain adjustments, and workforce reductions of up to 7,000 nonmanufacturing roles. These changes may pose execution risks and potential disruptions.
Supply Chain and Cost Pressures: The company faces ongoing supply chain challenges, including rightsizing and right-locating production to drive efficiencies and cost reductions. Commodity cost headwinds of approximately $200 million after tax are also expected.
Competitive Pressures: The company operates in a highly competitive environment with capable competitors, requiring continuous innovation and execution to maintain market share.
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Guidance & Outlook
Organic Sales Growth: Guidance for organic sales growth is in the range of flat to up 4% for fiscal year 2026. This includes a 30 to 50 basis point headwind from brand and product form discontinuations as part of the 2-year restructuring program.
Core EPS Growth: Guidance for core EPS growth is in the range of flat to up 4%, equating to $6.83 to $7.09 per share for fiscal year 2026. The midpoint of the range is $6.96, representing a 2% increase.
Market Growth Expectations: The markets in which P&G competes are expected to deliver local currency value growth in the range of flat to 3% for fiscal year 2026. P&G aims to grow organic sales modestly ahead of this underlying market growth.
Tariff Impact: Fiscal year 2026 includes a $1 billion before-tax headwind from tariffs, equating to a 5-point headwind to core EPS growth. This includes tariffs on goods imported from China, Canada, and other regions.
Free Cash Flow Productivity: Adjusted free cash flow productivity is forecasted in the range of 85% to 90% for fiscal year 2026, including increased capital spending and restructuring costs.
Capital Return to Shareholders: P&G plans to return approximately $15 billion to shareholders in fiscal year 2026, including $10 billion in dividends and $5 billion in share repurchases.
Restructuring Program: The 2-year restructuring program includes portfolio simplifications, supply chain adjustments, and organizational changes. Up to 7,000 non-manufacturing roles will be reduced, representing 15% of the current non-manufacturing workforce.
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Shareholder Return Plan
Dividend Increase: We increased our dividend by 5% and returned $16 billion of value to shareowners, nearly $10 billion in dividends.
Dividend Payment in Q4: We returned $3.3 billion of cash to shareowners this quarter, $2.6 billion in dividends.
Share Repurchase Program: We returned $16 billion of value to shareowners, including $6.5 billion in share repurchase, consistent with our guidance at the start of the fiscal year.
Share Repurchase in Q4: We returned $3.3 billion of cash to shareowners this quarter, including $700 million in share repurchase.
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Key Q&A
Q:What are Shailesh's unique attributes and why is he the right person to succeed Jon Moeller?
A:Shailesh has successfully led P&G's largest businesses, including the Fabric & Home Care sector, and has experience in both Enterprise and Focus Markets. As COO, he gained deeper knowledge of functional skill sets and capabilities, combined with 36 years of experience. Jon Moeller expressed confidence in Shailesh's ability to lead the next phase of growth and value creation.
Q:What efforts are being made to create tailwinds for P&G's growth in fiscal '26?
A:Efforts include a restructuring program to build financial headroom for innovation and commercialization, focusing on key categories, brands, and markets, improving supply chain efficiency, and investing in the next round of innovation and commercialization. These efforts aim to accelerate growth in a challenging environment.
Q:What is P&G's strategy to address the narrowing gap between its performance and category growth in North America?
A:P&G is addressing three factors: reduced category growth rates, inventory reductions by retail partners, and loss of superiority in some categories. The company is implementing a restructuring program and specific plans to regain superiority, with updates expected as early as September.
Q:How will the recent restructuring enable greater organizational capabilities?
A:The restructuring aims to tear down silos, improve decision-making, streamline work processes, and enhance the employee value proposition. It leverages new technology to make data seamlessly available and improve efficiency, decision-making, and analytical capabilities.
Q:Why is now the right time for the CEO transition?
A:Jon Moeller highlighted his 38 years of service and the company's strong strategic and executional position. The transition aligns with the fiscal year and allows for a smooth leadership change, supported by a strong team and sustainable strategy.
Q:What is the outlook for P&G's fiscal '26 guidance and its implications?
A:The guidance range is wider due to uncertainties in category growth, tariffs, pricing, and foreign exchange. The company aims for the upper end of the range, with EPS growth expected to be back-half weighted due to restructuring savings and other factors.
Q:What is the current state of category growth and its impact on P&G's performance?
A:Category growth has decelerated, with U.S. and Europe at around 2% and China showing improvement. P&G is focused on creating its own tailwinds through innovation and investment to drive category growth and regain share momentum.
Q:What is the impact of tariffs on P&G's fiscal '26 performance?
A:Tariffs are a significant headwind, with ongoing negotiations and uncertainties. P&G is implementing pricing to offset tariffs and expects the impact to stabilize inventory levels. The company is cautious about assuming tailwinds from reduced tariffs.
Q:What is the outlook for P&G's performance in China?
A:China's market is improving, with positive trends and strong consumer response to innovation. P&G has adapted its business model, including go-to-market strategies and media, to drive growth. The company is optimistic about its progress in China.
Q:How is P&G addressing trade-down risk and affordability concerns?
A:P&G is focusing on innovation across price tiers, offering pack sizes that meet consumer affordability, and emphasizing performance and value in communication. The company aims to maintain superiority in all price tiers and address consumer dissatisfaction in its categories.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the step-by-step elements of the restructuring program and the exact timing of when tailwind creation efforts will yield tangible results. Additionally, they did not clarify the full impact of tariff negotiations or provide precise outcomes from test markets for the new organizational design.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Andre
Care single
Chairman
Enterprise Markets
Executive
Fabric Care
Feminine Care
Focus Markets
Hair Care
Home Care
Inc Research
Markets sale
Oral Care
PG
Pampers
Personal
PowerMop
Procter Gamble
Research Division
Shailesh
business
cash shareowner
cleaning
design
employee
entry
list
market currency
move
objective
product form
product package
restructuring program
step
tariff
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The earnings call summary presents a mixed outlook. Basic financial performance, product development, and market strategy sections show moderate optimism, with growth expected in the second half of the year. However, concerns about margin trajectory, grooming segment weakness, and the lack of specific guidance on growth balance indicate uncertainties. The shareholder return plan is positive, but overall, the combination of positive and negative factors results in a neutral sentiment, suggesting limited stock price movement.
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The earnings call reveals strong growth in key regions like China and Latin America, with effective restructuring and innovation strategies. Despite a slight market share decline, positive trends in the U.S. and strategic responses to competition suggest resilience. The Q&A highlights management's focus on innovation and value, with optimistic guidance in North America and Latin America. However, concerns over competition and market volatility in China are noted. Overall, the positive aspects outweigh negatives, indicating a likely stock price increase.
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