P&G's Q1 2026: Contradictions Emerge on Consumer Behavior, Pricing Strategy, Innovation, Market Growth, Tariff Mitigation, and Organizational Restructuring

Date of Call: None provided

Financials Results

• EPS: $1.99 core EPS, up 3% versus prior year (currency-neutral core EPS +3%)
• Gross Margin: Core gross margin down 50 basis points
• Operating Margin: Core operating margin equal to prior year (currency-neutral core operating margin up 40 basis points)

Guidance:

• Organic sales growth: in line to +4% for fiscal 2026 (includes 30–50 bps headwind from product/market exits).
• Core EPS growth: in line to +4% ($6.83–$7.09, center $6.96; center +2%).
• Includes commodity headwind ≈ $100M after tax and FX tailwind ≈ $300M after tax; guidance includes ≈ $500M before-tax higher tariff costs.
• Core effective tax rate 20–21%; adjusted free cash flow productivity forecast 85–90%; modestly higher interest expense and increased capex to add capacity.
• Plan to return ≈ $10B dividends and ≈ $5B share repurchases (≈ $15B total).

Business Commentary:

* Organic Sales and Market Performance: - Procter & Gamble reported organic sales grew by approximately 2% for the first quarter of fiscal 2026, maintaining 40 consecutive quarters of organic sales growth. - The growth was broad-based across categories and regions, with 8 out of 10 product categories growing or holding organic sales, driven by strong execution of their integrated strategy despite challenging geopolitical and competitive environments.

• North America and China Market Dynamics:
• In North America, organic sales grew by 1%, with consumption in P&G's categories decelerating throughout the quarter.
• Greater China saw organic sales growth of 5%, marking the second consecutive quarter of sequential improvement.

• The growth in China was driven by interventions in digital commerce, distribution, and strong innovation, particularly in the SK-II and Pampers brands.

• Innovation and Brand Strategies:

• Procter & Gamble launched significant innovations in Tide and Pampers, indicating a focus on enhancing brand superiority and market share.

• The Tide liquid innovation, the biggest upgrade in 20 years, and the expansion of Tide Evo were aimed at driving category growth and trade-up in the fabric care segment.

• Financial Outlook and Restructuring:

• The company maintained guidance for fiscal 2026 with organic sales growth in line to plus 4%, despite a $100 million commodity cost headwind.
• Procter & Gamble is progressing with a restructuring program aiming to return $15 billion of cash to shareholders and reduce up to 7,000 non-manufacturing roles.

Sentiment Analysis:

Overall Tone: Neutral

• Management described a "solid quarter" amid a "challenging environment," highlighted 40 consecutive quarters of organic sales growth and core EPS of $1.99 (up 3%), and said they are "maintaining all guidance ranges" while increasing investments and restructuring to drive future growth and margin expansion.

Q&A:

• Question from Dara Mohsenian (Morgan Stanley): How are the organizational changes from the restructuring being received internally and what does the reorg do for P&G's competitiveness in a difficult top-line environment?
  Response: Restructuring is on track; teams understand the mission—portfolio pruning, supply-chain interventions and up to 7,000 non-manufacturing role reductions will create smaller digitally enabled brand teams, deliver cost savings and fund innovation to improve agility and competitiveness.

• Question from Peter Galbo (Bank of America): What competitive dynamics are you seeing real-time in North America fabric care and baby care and how are you responding?
  Response: Facing heightened promotional activity; response is integrated superiority—sustained investment in meaningful innovation (e.g., Tide liquid upgrade, Tide Evo, baby-care restages), targeted retailer support and execution rather than relying on promotions alone to drive sustainable share.

• Question from Lauren Lieberman (Barclays): Market share was down 30 bps and only 24 of 50 category/country combos held or gained share—where are hotspots and drivers?
  Response: Share loss concentrated in markets with intense promotion (notably U.S. and parts of Europe); sequential U.S. absolute share has been improving, while China and Latin America show share gains where go-to-market and innovation interventions were made.

• Question from Steve Powers (Deutsche Bank): Can you elaborate on what changed in Greater China, how the business trended through the quarter, and sustainability of progress?
  Response: Improvement driven by revamped go-to-market (fewer/better-aligned distributors and incentive changes), stronger local innovation and tighter retailer/online execution; results are broad-based and encouraging but may be volatile—team expects continued progress.

• Question from Rob Ottenstein (Evercore): Has affordability become a bigger driver of consumer choice and how will you address it beyond innovation (e.g., channel, RGM, pack architecture)?
  Response: Consumers seek sharper value (price/performance); P&G uses price ladders, pack-size optimization, channel-specific offerings and integrated superiority across tiers—competing on both value and premium when appropriate.

• Question from Chris Carey (Wells Fargo Securities): Is improvement in China broader than Skin & Personal Care—are other categories improving and is it durable?
  Response: Yes—fabric, hair, fem care and baby care are also improving due to portfolio interventions, innovation and distribution changes; breadth of gains increases confidence though volatility remains.

• Question from Andrea Teixeira (JP Morgan): Can you give examples of price/mix actions and how you address low-income consumers (diapers, paper goods) beyond premium innovation?
  Response: P&G innovates across all tiers (e.g., Luvs, mid-tier Baby Dry, Cascade upgrades, Olay premium), adjusts pack sizes and price points, and aligns channel/promo strategies to present value to low-income shoppers while also driving trade-up opportunities.

• Question from Filippo Falorni (Citi): What drove the lower commodity and tariff headwind and where are the incremental benefits being redeployed given unchanged EPS guidance?
  Response: Commodity relief from lower oil prices and tariff relief via exclusions/rescinded retaliatory tariffs (e.g., Canada) reduced headwinds; company is preserving flexibility to reinvest benefits into innovation and marketing to defend/grow categories.

• Question from Peter Graham (UBS): How do you see North America category demand evolving and how should we think about Q2 being the softest quarter due to last year's port-strike-driven order spikes?
  Response: Consumption decelerated to roughly 1.8–1.9% and is expected ~1.5–2% the next few quarters; Q2 will be the softest versus last year's elevated base from port-strike order spikes, with stronger growth expected in back half of the year.

• Question from Olivia Tong (Raymond James): Regional outlooks beyond the U.S./China (Western Europe, Latin America) and will there be bigger portfolio culling to change growth trajectory?
  Response: Western Europe mirrors North America (~2%); Latin America strong (~7%); enterprise markets muted; portfolio actions are targeted fringe exits and go-to-market changes—no major core-portfolio disposals planned; focus remains on organic growth opportunities.

• Question from Nick Mody (RBC Capital Markets): How should suppliers prepare for agentic commerce (e.g., OpenAI/Walmart) and ensure products get into algorithm-driven baskets?
  Response: View agentic commerce as an opportunity—leverage deep consumer understanding, data infrastructure and close retailer collaboration to ensure brand visibility and that superior propositions are surfaced by recommendation algorithms.

• Question from Tomil Godswala (Jefferies): Were tariff changes less than expected and were China distribution changes a one-time bump or structural?
  Response: Tariff relief came from exclusions for materials not produced in the U.S.; China distribution changes are structural (fewer, better-aligned distributors and incentive changes) and expected to deliver ongoing benefits, not a one-time gain.

• Question from Robert Moskow (TD Cowen) via Victor: With tariff impacts reduced, does this change your U.S. pricing strategy and are you seeing consumer weakness affecting trends or share performance?
  Response: U.S. pricing (~2–2.5%) was mainly innovation-driven with tariffs a secondary contributor; pricing approach remains unchanged; sequential absolute share is improving and company expects to exit the U.S. with neutral-to-positive share.

Contradiction Point 1

Consumer Behavior and Pricing Strategy

This contradiction involves differing perspectives on consumer behavior and pricing strategy, which are crucial for understanding company response to market conditions and financial performance.

How is consumer affordability impacting consumer choice, and what steps are you taking to address it? - Rob Ottenstein (Evercore)

2026Q1: Value, not affordability, is the key factor... We're optimizing price points and innovating across value tiers to address this. - Andre Schulten(CFO)

How is Pampers addressing trade-down risks and affordability concerns? - Kevin Michael Grundy (BNP Paribas Exane)

2025Q4: We are analyzing pricing ladders to ensure affordability, focusing on both price and value... We will continue to invest across all price tiers to meet consumer needs. - Andre Schulten(CFO)

Contradiction Point 2

Innovation and Growth Strategy

This contradiction pertains to the emphasis on innovation and growth strategy, which are critical for maintaining competitive advantage and driving business growth.

Could you discuss the competitive landscape in North America for fabric care and baby care, including current innovations? - Peter Galbo (Bank of America)

2026Q1: Our response is integrated superiority via innovation. In baby care, Swaddlers and Cruisers have shown growth, and Luvs Platinum has grown share. - Andre Schulten(CFO)

How do innovation efforts align with the strategy to reaccelerate category growth and Pampers' top line? - Stephen Robert R. Powers (Deutsche Bank)

2025Q4: The restructuring program aims to provide financial headroom for investment in innovation and market growth. We are focused on delivering results through superior propositions. - Jon R. Moeller(CEO)

Contradiction Point 3

Consumer Behavior and Market Growth

It reflects differing opinions on consumer behavior and market growth trends, which are crucial for strategic planning and investor expectations.

How will underlying category demand evolve moving forward, and how will port strikes impact operations? - Peter Graham (UBS)

2026Q1: North America's consumption slowed, but a 1.5-2% range is expected. Port strikes impacted the second quarter, which will be softer. The long-term goal is to drive category growth back to 3%. - Andre Schulten(CFO)

What factors should we consider when modeling fiscal '26, given current growth rates and available levers? - Bryan Spillane (Bank of America)

2025Q3: U.S. consumption levels are down from 3% to 1%, same in Europe. Global category growth rates expected to return to 3-4% over 2-3 years. - Andre Schulten(CFO)

Contradiction Point 4

Tariff Impact and Mitigation Strategies

It involves the assessment of tariff impacts and mitigation strategies, which are critical for financial planning and risk management.

What caused the reduced commodity and tariff headwinds, and how are the offsetting factors being reinvested? - Filippo Falorni (Citi)

2026Q1: Tariff headwinds are down due to lower oil prices. Tariff exclusion of natural materials helped. Volatility remains, and we're maintaining flexibility for additional investments. - Andre Schulten(CFO)

What is the tariff impact and how will you mitigate it? - Andrea Teixeira (JPMorgan)

2025Q3: Tariff impact estimated at $1 billion to $1.5 billion. Mitigation involves productivity, sourcing changes, and pricing/innovation. Average global impact is manageable, but SKU-level impacts are significant. - Andre Schulten(CFO)

Contradiction Point 5

Organizational Changes and Restructuring

This contradiction highlights differing perspectives on the impact and goals of organizational changes and restructuring, which are crucial for operational efficiency and long-term growth.

How do you assess the internal and external organizational changes due to restructuring and a challenging industry landscape? - Dara Mohsenian (Morgan Stanley)

2026Q1: The organizational changes are progressing well, with a clear mission to create a more agile company. - Andre Schulten(CFO)

Will the restructuring strengthen organizational capabilities and address the impact of external technological advancements? - Dara Warren Mohsenian (Morgan Stanley)

2025Q4: The restructuring focuses on disrupting ourselves constructively to create financial headroom. - Jon R. Moeller(CEO)