Procter & Gamble's Restructuring Crossroads: Cost Cuts vs. Sustainable Growth

Procter & Gamble (P&G) has embarked on a bold restructuring program aimed at revitalizing its operations amid a challenging economic landscape. The company's moves—job cuts, brand exits, and aggressive cost discipline—reflect a strategic pivot to prioritize profitability over growth at all costs. But as P&G executes this shift, investors must ask: Are these measures sustainable, and do they lay the groundwork for long-term shareholder value, or do they risk undermining the very strengths that have sustained the consumer goods giant for over a century?

The Cost-Cutting Playbook

P&G's restructuring is a multi-front effort. Over the next two years, the company plans to cut 7,000 jobs—primarily in non-manufacturing roles—while exiting underperforming markets and products. The goal is to reduce complexity, streamline decision-making, and free up capital for higher-potential areas. The CFO has framed this as a response to tariff-driven cost pressures and a broader need to “reinvent for resilience.”

The financial impact is already visible. Fiscal 2024 saw net sales grow 2% to $84 billion, with organic sales up 4% due to pricing and volume gains. Gross margins expanded 140 basis points as lower commodity costs and productivity savings offset inflationary pressures. However, selling, general, and administrative (SG&A) expenses rose 240 basis points, reflecting reinvestment in marketing and wage inflation.

The Sustainability Test

The restructuring's long-term viability hinges on two critical factors: whether cost savings outweigh the risks of reduced investment, and whether P&G can maintain its competitive edge in key categories.

Cost Savings vs. Growth Trade-offs
P&G's restructuring is projected to save $1.0–$1.6 billion in costs, but these savings are offset by upfront charges and ongoing risks. For instance, the $750 million charge tied to exiting Nigerian and Argentine operations underscores the cost of divesting non-core markets. Meanwhile, the company's decision to cut non-manufacturing roles could free up resources for automation and digitization—but only if those investments yield lasting efficiency.

The Baby, Feminine & Family Care segment's 1% organic sales decline raises a red flag. This category, which includes Pampers, saw volume declines and share losses, potentially due to reduced marketing spend or supply chain issues. If cost-cutting erodes brand relevance in such core segments, the savings could prove temporary.

Margin Pressure and Tariff Headwinds
P&G's gross margin gains are fragile. Commodity costs are expected to reduce core EPS by $0.20 in fiscal 2025, while tariffs could shave 3–4 cents per share by late 2026. These headwinds highlight a broader vulnerability: P&G's reliance on external factors like input prices and trade policies could limit its ability to sustain margin improvements.

The Path to Shareholder Value

To maximize value, P&G must balance its restructuring with strategic reinvestment. Its 2025 outlook—forecasting 2–4% sales growth and 10–12% diluted EPS growth—depends on executing two priorities:

1. Defending High-Value Categories: The Beauty and Grooming segments, which grew 3% and 7% organically, respectively, are critical. P&G must protect SK-II's position in China and innovate in hair care and oral care, where premium pricing has driven success.
2. Leveraging Automation and Agility: The shift to digitized operations could reduce costs long-term, but only if it improves responsiveness to consumer trends. The company's decision to simplify its portfolio by exiting non-core brands may also free up capital for R&D and marketing in high-growth areas like Home Care, which saw “high single-digit” volume gains.

Investment Considerations

P&G's stock has underperformed peers in recent quarters, but its restructuring could catalyze a turnaround. Key metrics to watch:

• Margin Expansion: Gross margins must hold above 48% (their 2024 level), while SG&A as a percentage of sales should stabilize.
• Brand Health: Track share performance in Baby Care and SK-II's recovery in China.
• Debt and Dividends: P&G's $10 billion annual dividend and $6–7 billion buyback program are sustainable if EPS growth meets forecasts.

Historical backtests reveal that a strategy of buying PG on earnings announcement dates and holding for 20 days since 2020 resulted in a CAGR of 3.51%, significantly lagging the benchmark return of 99.88%. The strategy also faced a maximum drawdown of 15.16%, underscoring the risks of relying on short-term catalysts without considering broader market conditions. These findings emphasize the need for caution around earnings events, as volatility and underperformance highlight the limits of tactical trading in a stock driven by long-term fundamentals.

Conclusion

P&G's restructuring is a necessary step to navigate today's challenges, but its success depends on executing with precision. The company's deep brand portfolio and cash flow remain strengths, but investors must weigh the risks of over-cutting. For now, P&G's commitment to shareholder returns and its focus on high-margin categories suggest it could emerge stronger—if it avoids sacrificing growth for short-term savings.

Investors should consider P&G a “hold” with a cautious bias: the stock offers dividend stability and a potential rebound if restructuring delivers as promised. But a misstep in core segments or margin management could quickly turn this into a value trap. Monitor Q3 2025 earnings for clues on execution—specifically, whether Baby Care's decline reverses and gross margins hold firm.

In the end, P&G's restructuring is less about cutting costs and more about choosing where to compete—and win—in a world where every dollar must work harder.