Procter & Gamble Downgraded by Evercore ISI Ahead of Earnings Report

Evercore ISI has lowered its rating for Procter & Gamble (PG.US) from "outperform" to "in line with the market" ahead of the company's fourth-quarter earnings report. This decision is based on the anticipation that Procter & Gamble will issue guidance for the 2026 fiscal year with organic sales growth of 1% to 3%. This forecast includes an estimated 50 basis points of loss due to portfolio optimization, which does not involve asset divestment. The projected growth rate is likely to fall short of the market's broader expectations of 2.4%.

Evercore ISI's analyst emphasized that the 2026 fiscal year guidance will cover a range of scenarios that are mild but widespread. The macroeconomic pressures are seen as temporary, and unlike previous economic downturns, Procter & Gamble's product portfolio has expanded to include mid-tier competitive brands in price-sensitive categories. This expansion provides alternative options for consumers facing economic pressures.

However, concerns remain regarding unfavorable changes in retail channels, which pose challenges to Procter & Gamble's growth potential. Notably, in the United States, Amazon currently accounts for 50% of the growth in all household and personal care products. This has resulted in a two or one percentage point growth gap between Amazon and Procter & Gamble's core retailers, primarily Walmart and Costco. Despite this, Procter & Gamble maintains a competitive advantage in these core retailers due to its scale and product offerings.

Procter & Gamble is scheduled to release its fourth-quarter earnings report on July 29. Market expectations are set for revenue of 208 billion dollars and earnings per share of 1.42 dollars. The downgrade by Evercore ISI reflects the market's concerns over Procter & Gamble's ability to meet its growth targets, particularly in light of the lower-than-expected organic sales growth forecast. The focus on portfolio optimization, rather than asset divestment, indicates a strategic shift towards internal efficiency and cost management. However, this approach may not be sufficient to meet market expectations, as evidenced by the lower-than-expected organic sales growth forecast.