The Procter & Gamble Company (PG) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Organic Sales Growth 2% growth year-over-year. Volume was in line with the prior year, pricing and mix each up 1%. Growth was broad-based across categories and regions, with 8 of 10 product categories growing or holding organic sales. Reasons include strong execution of integrated strategy and innovation.
Core Earnings Per Share (EPS) $1.99, up 3% year-over-year. On a currency-neutral basis, core EPS also increased 3%. Reasons include strong productivity improvement and healthy reinvestment in innovation and demand creation.
Core Gross Margin Down 50 basis points year-over-year. Reasons include heightened competitive activity and cost pressures.
Core Operating Margin Equal to prior year. On a currency-neutral basis, core operating margin was up 40 basis points. Reasons include strong productivity improvement and reinvestment in innovation.
Adjusted Free Cash Flow Productivity 102%, a very strong result for Q1. Reasons include effective cash management and operational efficiency.
Cash Returned to Shareholders $3.8 billion, including $2.55 billion in dividends and $1.25 billion in share repurchases. Reasons include strong cash flow generation and commitment to shareholder returns.
Global Aggregate Market Share Down 30 basis points year-over-year. Reasons include heightened competitive activity in the U.S. and Europe.
Organic Sales in Greater China Grew 5% year-over-year. Reasons include interventions in digital commerce and distributor business, along with strong innovation and execution of integrated strategy.
Organic Sales in Latin America Up 7% year-over-year. Reasons include strong growth across Mexico, Brazil, and smaller markets, driven by improved execution of integrated superiority strategy.
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Operating Highlights
Tide Liquid Detergent Upgrade: Tide's biggest upgrade in 20 years with advanced perfume innovation and superior cleaning technology.
Tide evo Expansion: National expansion of Tide evo Free & Gentle with recyclable packaging and no plastic bottles.
Pampers Baby Care Innovations: Upgrades to Pampers Easy Ups, Swaddlers, Cruisers, and Baby Dry line to drive consumer trial.
Safeguard and Olay Premium Body Wash: Premium body wash innovations in Greater China driving significant growth.
Vicks Brand Innovation: Strong product and packaging innovation driving 15% organic sales growth in Latin America.
Greater China Growth: Organic sales grew 5%, driven by Pampers and SK-II with double-digit growth.
Latin America Growth: Organic sales up 7%, led by Mexico, Brazil, and smaller markets.
European Market Performance: Mixed results with strong growth in France and Spain, but softer in Germany and Italy.
Productivity Improvements: 230 basis points improvement with $1.5 billion cost savings target in supply chain.
Restructuring Program: Plans to reduce up to 7,000 non-manufacturing roles and streamline operations.
Marketing Efficiency: Focus on reducing waste and increasing reach through better marketing productivity.
Portfolio Adjustments: Exiting low-tier products and focusing on high-performing markets and categories.
Supply Chain Optimization: Rightsizing and relocating production to improve efficiency and reliability.
Organizational Changes: Streamlining roles and processes to create a more agile and efficient organization.
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Risk or Challenges
Geopolitical and competitive environment: The company is operating in a difficult geopolitical and competitive environment, which could impact its ability to maintain growth and market share.
Consumer demand and market deceleration: Consumption in categories decelerated throughout the quarter, with unit volumes essentially flat, indicating potential challenges in sustaining consumer demand.
Trade inventory volatility: Pricing changes caused trade inventory volatility, which could disrupt supply chain stability and impact sales.
Regional performance variability: While some regions like Greater China and Latin America showed growth, others like Germany, Italy, and parts of Asia Pacific, Middle East, and Africa experienced softer performance or declines.
Global market share decline: Global aggregate market share was down 30 basis points, reflecting heightened competitive pressures.
Restructuring and workforce reduction: The company plans to reduce up to 7,000 non-manufacturing roles, which could lead to operational disruptions and employee morale issues during the transition.
Commodity and tariff cost headwinds: The company faces approximately $500 million in higher costs from tariffs and $100 million in commodity cost headwinds, which could pressure margins.
Supply chain adjustments and risks: Restructuring efforts include supply chain adjustments, which may introduce risks related to production efficiency and reliability.
Economic and currency uncertainties: The guidance assumes no significant geopolitical disruptions, major supply chain disruptions, or currency weaknesses, but these remain potential risks.
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Guidance & Outlook
Organic Sales Growth: Maintaining guidance for fiscal 2026 with organic sales growth expected to be in the range of 0% to +4%. Global market growth for the portfolio footprint is around 2% on a value basis.
Top Line Growth Phasing: Q2 is expected to be the softest growth quarter due to prior year port strike dynamics, with stronger growth anticipated in the back half of the fiscal year.
Core EPS Growth: Guidance for core EPS growth is in the range of 0% to +4%, equating to $6.83 to $7.09 per share. Modest earnings growth is expected over the balance of the year due to increased investments in innovation and competitiveness.
Commodity Costs and Foreign Exchange: Outlook includes a commodity cost headwind of approximately $100 million after tax and a foreign exchange tailwind of approximately $300 million after tax.
Tariff Costs: Fiscal 2026 outlook includes approximately $500 million before tax in higher costs from tariffs, with related supply chain investments and pricing adjustments also factored in.
Interest Expense and Tax Rate: Expecting modestly higher interest expense and a core effective tax rate in the range of 20% to 21% for fiscal 2026, resulting in a $250 million after-tax headwind to earnings growth.
Free Cash Flow Productivity: Forecasting adjusted free cash flow productivity in the range of 85% to 90% for the year, including increased capital spending and restructuring costs.
Shareholder Returns: Plan to return approximately $15 billion to shareholders in fiscal 2026, including $10 billion in dividends and $5 billion in share repurchases.
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Shareholder Return Plan
Dividends Paid: $2.55 billion in dividends were paid in the first quarter of fiscal '26.
Planned Dividends for Fiscal '26: The company expects to pay around $10 billion in dividends for the fiscal year.
Share Repurchases: $1.25 billion in share repurchases were completed in the first quarter of fiscal '26.
Planned Share Repurchases for Fiscal '26: The company plans to repurchase approximately $5 billion in common stock for the fiscal year.
Total Cash Return to Shareholders: The company plans to return roughly $15 billion of cash to shareholders in fiscal '26, combining dividends and share repurchases.
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Key Q&A
Q:How are the organizational changes from the June restructuring being received internally at P&G?
A:The restructuring is on track, and the organization is taking it in stride due to a clear mission. Plans are in place globally to reduce roles and create a more agile and faster-executing organization. The restructuring includes portfolio discipline, supply chain flexibility, and a reduction of up to 7,000 non-manufacturing headcount to enable smaller, digitally-enabled teams focused on brand building.
Q:What is P&G's response to heightened competition in North America Fabric Care and Baby Care?
A:P&G is addressing the competitive environment with an integrated approach, focusing on innovation and superiority rather than just promotions. In Baby Care, innovations like Swaddlers, Cruisers 360, and Luvs Platinum have driven share growth. In Fabric Care, the Tide liquid innovation and Tide evo are expected to drive category and share growth sustainably.
Q:Why has P&G's global market share declined by 30 basis points, and what are the hotspots of activity?
A:The decline is attributed to increased promotional activity in categories like Baby Care, Fabric Care, and Oral Care, especially in the U.S. and Europe. However, P&G is focusing on structural responses like innovation and integrated superiority. Positive trends include sequential share growth in the U.S. and strong performance in China and Latin America.
Q:What progress has P&G made in China, and how sustainable is it?
A:P&G has made significant progress in China with a 5% growth in Greater China. This includes strong innovation, changes in the go-to-market model, and improved consumer communication. Categories like Baby Care, SK-II, and Fabric Care have shown strong growth. While the market remains volatile, the interventions are yielding positive results.
Q:How is P&G addressing affordability concerns among consumers?
A:P&G focuses on delivering value rather than just affordability. This includes offering strong price ladders across tiers, innovating in all value tiers, and optimizing pack sizes and channel distribution. Private label shares have declined, and P&G's sequential value share in the U.S. has improved.
Q:What is P&G's outlook for North America and other regions?
A:In North America, category consumption is expected to grow at 1.5%-2% in the next two quarters, with a stronger second half of the year. Europe shows similar dynamics, while Latin America continues to grow strongly at 7%. China remains a wildcard but shows positive trends. Enterprise markets are expected to grow at 3%-4%.
Q:What are P&G's plans for portfolio changes and growth opportunities?
A:P&G is making portfolio changes on the fringes, ensuring value creation in every category-country combination. The company sees significant growth opportunities within its existing portfolio, including underserved consumers in North America, increasing European household penetration, and expanding in enterprise markets. There are no plans for transformational acquisitions.
Q:How is P&G preparing for the rise of agentic commerce?
A:P&G views agentic commerce as an opportunity and is focusing on understanding consumer behavior, optimizing data infrastructure, and collaborating with retail partners to ensure superior brand propositions are visible in this new shopping environment.
Q:What is the impact of tariff changes on P&G's pricing strategy?
A:Tariff changes, including exemptions for natural materials, have reduced headwinds. However, most of P&G's recent pricing in the U.S. is driven by innovation rather than tariffs, with no significant changes to the pricing approach.
Q:How is P&G performing in Latin America despite a challenging macro backdrop?
A:P&G is performing well in Latin America with 7% growth, driven by strong portfolios and innovation. Key markets like Brazil and Mexico are showing solid growth, and P&G continues to gain category share in the region.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific impact of competitive promotions on market share decline and provided limited details on the exact measures being taken to counteract these challenges. Additionally, while discussing the sustainability of growth in China, management acknowledged market volatility but did not provide concrete strategies to mitigate potential downturns.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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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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Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
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When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
