Procter & Gamble Company (The)

Good morning and welcome to Procter & Gamble's quarter-end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website www.pginvestor.com a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Andre Scholten.

Good morning. Joining me on the call today is John Chevalier, Senior Vice President, Investor Relations. I will start with an overview of results for the first quarter of fiscal 26 and spend a few minutes on strategy and innovation and will close with guidance for fiscal 26 and then take your questions. First quarter results reflect strong execution of our integrated strategy in a difficult geopolitical, competitive, and consumer environment. This marks 40 consecutive quarters of organic sales growth and keeps us on track for the 10th consecutive fiscal year of core EPS growth. Organic sales rounded up to 2%. Volume was in line with prior year. Pricing and mix were each up 1%. Growth continues to be broad-based across categories and regions. with eight of 10 product categories growing or holding organic sales. Skin and personal care led the growth up high single digits. Hair care, grooming, personal health care, home care, and baby care each grew low singles. Oral care and feminine care were in line with prior year, and fabric care and family care were each down low single digits. Six of seven regions held or grew organic sales. Focus markets were up more than 1%. Organic sales in North America were up 1%. Consumption in our categories decelerated throughout the quarter, with unit volumes essentially flat for both markets and P&G brands. Price mix added a point of growth. The pricing for innovation and supply chain costs that was announced on June 15th went into effect on September 15th. This caused some trade inventory volatility in the quarter, but shipments were largely in line with offtake for the full quarter. European focus markets organic sales were equal to prior year, with strong growth in France and Spain, offset by a softer period in Germany and Italy. Greater China organic sales grew 5%, another quarter of sequential improvement and positive momentum. Six of seven categories grew organic sales in quarter one, with Pampers and SK2 each growing double digits. This progress is the result of interventions made across the digital commerce and distributor business, along with strong innovation and execution of the integrated strategy. Enterprise markets grew more than 1% for the quarter. Latin America organic sales were up 7%, with strong growth across Mexico, Brazil, and the balance of smaller markets in the region. Organic sales in the European enterprise region were in line with prior year, and the Asia Pacific Middle East Africa enterprise region was down low singles. Global aggregate market share was down 30 basis points, 24 of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.99, up 3% versus prior year. On a currency neutral basis, core EPS also increased 3%. Core growth margin was down 50 basis points and core operating margin was equal to prior year. Strong productivity improvements of 230 basis points with healthy reinvestment in innovation and demand creation. Currency neutral core operating margin was up 40 basis points. Adjusted free cash flow productivity was 102%, a very strong Q1 result. We returned $3.8 billion of cash to share owners this quarter, $2.55 billion in dividends, and $1.25 billion in share repurchases. In summary, a solid quarter to start the year in what continues to be a challenging environment, including heightened competitive activity in the US and in Europe. Moving on to strategy, given the market and competitive challenges we face, now is the time for increased investment in and flawless execution of our integrated growth strategy with the consumer firmly at the center of everything we do. We will drive superiority in every part of our portfolio across all value tiers where we play, all retail channels and all consumer segments we serve to grow categories, provide value to consumers and customers, and create value for shareholders. We will strengthen the integration of all vectors of superiority, starting with a very strong innovation program this year, building stronger core brand propositions and growing bigger adjacencies and forms to enhance consumer delight, core and more. In U.S. fabric care, we recently started shipments of Tide's biggest upgrade to liquid detergent in 20 years. Tide's boosted formula combines its ultimate grease and stain fighting technology with an advanced perfume innovation resulting in laundry that's cleaner, wider, brighter, and fresher. This significant innovation on liquid detergent strengthens the core of the Tide franchise as we continue plans for expansion of Tide Evo, our new laundry detergent developed on our breakthrough functional fibers platform. Evo has started its first stage of national expansion with an online launch of Tide Evo free and gentle. Evo offers superior cleaning performance in a recyclable package, no plastic bottles or water. In test market stores, Evo sales have been highly incremental to category growth, and retailer demand has been well above initial expectations. We're in the process of adding manufacturing capacity to prepare for an eventual national launch. We have a strong bundle of innovation launching across the US baby care business this fall, including improvements on Pampers Easy Ups, Swaddles, Cruisers, and the first phase of restage to our mid-tier Pampers Baby Dry line. Each are important upgrades to drive consumer trial and delight, especially considering the ramp up in competitive promotional activity in the category. In Greater China, premium body wash innovation on both the Safeguard and Olay brands drove 9% personal care growth in the quarter. Safeguard Detox Body Wash is designed to provide superior deep pore cleansing and skin transformation. The recent restage across all elements of superiority has accelerated market conversion from bars to liquids and from basic products to premium offerings. Olay Premium Body Wash, launched in July, contains Olay facial skin essence and the first ever sparkling liquid to provide visible skin benefits and an unforgettable showering experience. Since launch, the new premium line has grown over 30% in offline channels and 80% online, driving category growth and Olay share growth. In Latin America, personal health care grew organic sales plus 15% in quarter one, driven by improved execution of the integrated superiority strategy. A combination of strong product and packaging innovation on the VIX brand, compelling consumer communication, strong retail execution, and superior consumer value drove both growth across markets and the region. Brazil led the growth up nearly 30%, along with growth in Mexico, Peru, Colombia, and smaller distributor markets. Our innovation program is designed to strengthen the core brand propositions combined with full media and in-store support across the portfolio, where we add new elements to our brands like we are doing with Tide Evo, we ensure the more is sufficient in size to warrant full brand communication and go-to-market support. Superiority integrated across all five vectors. We will continue to accelerate productivity in all areas of our operation, including the recently announced restructuring work to fuel investment and superiority, mitigate cost and currency headwinds, and drive margin expansion. We have an objective for growth savings in cost of goods sold of up to $1.5 billion before tax, enabled by platform programs with global application across categories with supply chain 3.0. We have line of sight to savings for improved marketing productivity, more efficiency, greater effectiveness, avoiding excess frequency and reducing waste while increasing reach. We're taking targeted steps to reduce overhead as we digitize more of our operations. Visibility to more savings opportunities is increasing as the businesses continue to build their three-year rolling productivity master plans and as we accelerate productivity with our restructuring efforts. We will continue to actively manage our portfolio across markets and brands to strengthen our ability to generate U.S. dollar-based returns in daily use categories where performance drives brand choice. The portfolio choices we are making as part of the restructuring program include different go-to-market choices in some geographies, surgical exits of some categories, brands, and product forms in individual markets. We've announced several steps so far, redesigning our business model in Pakistan to an import model with local distributors, managing trade relationships, discontinuing laundry detergent bars in India and the Philippines, exiting several low-tier oral care products in some enterprise markets, focusing the Olay brand on the most productive European markets, and streamlining our Braun device portfolio in focus and enterprise markets. These steps are aimed at accelerating growth as we move further through the restructuring program. Also, these portfolio moves enable us to make related interventions in our supply chain, right-sizing, right-locating production to drive efficiencies, faster innovation, cost reduction, and even more reliable and resilient supply. As part of the two-year program, we are making additional organization, process, and technology changes to enable an even more agile, empowered, and accountable organization, making roles broader, teams smaller, and faster, and work more fulfilling and more efficient, actively reducing, eliminating, or automating internal work processes supporting teams with data and technology to increase capacity and capability to focus on integrated plans to deliver superior propositions to all consumers versus spending time internally. We expect to reduce up to 7,000 non-manufacturing roles or up to 15% of our current non-manufacturing workforce over this fiscal year and fiscal 27. We're making very good progress with organization designs to deliver this objective. While not easy, we firmly believe this will further empower our highly capable and agile organization that is ready to step forward to create value for all consumers, customers, and shareholders. We will continue our efforts to constructively disrupt ourselves, our industry, changing, adapting, creating new ideas, technologies, and capabilities that will extend our competitive advantage. These strategic choices across portfolio superiority, productivity, constructive disruption, and our organization will continue to reinforce and build on each other. We remain confident in our strategy and its importance, especially in challenging times, to drive market growth and to deliver balanced growth and value creation. A long-term focus on the strength of our brands and categories is the best way to position ourselves for stronger growth when the economic climate and consumer confidence improves This starts with a strong innovation plan and healthy investment to drive trial and user growth, the plan we are executing. As we said in the July earnings call, there are times when bigger steps are needed to bolster growth and value creation. The teams are on it. Moving on to guidance for fiscal 2026. As you saw in our press release this morning, we're maintaining all guidance ranges for the fiscal year. Organic sales growth of inline to plus 4%, Global market growth for our portfolio footprint is around 2% on a value basis at the center of our guidance range. As a reminder, this guidance includes 30 to 50 basis points headwind from product and market exits that are part of restructuring work. As you consider phasing of top-line growth, recall that Q2 last year benefited from two spikes in orders related to port strikes. the actual port strike that took place early October, and the concern of another strike in January. These dynamics will likely result in quarter two this year being the softest growth quarter for the year, with stronger growth in the back half. On the bottom line, core EPS growth in line to plus 4%, which equates to a range of 683 to 709 per share, or 696, up 2% in the center of the range. While we delivered strong EPS growth in quarter one, we expect modest earnings growth over the balance of the year as investments in innovation and competitiveness increase, particularly in the U.S. and in Europe. This outlook includes a commodity cost headwind of approximately $100 million after tax and a foreign exchange tailwind of approximately $300 million after tax. Our fiscal 26 outlook now includes approximately $500 million before tax in higher costs from tariffs While this is an improvement to the isolated tariff impact, keep in mind that there are other offsetting impacts, including related supply chain investments and adjustments to pricing plans also assumed in our guidance. Below the operating line, we continue to expect modestly higher interest expense versus last fiscal year and a core effective tax rate in the range of 20 to 21% for fiscal 26. combined a $250 million after-tax headwind to earnings growth. We are forecasting adjusted free cash flow productivity in the range of 85% to 90% for the year. This includes an increase in capital spending as we add capacity in several categories and as we incur the cash costs from the restructuring work. We expect to pay around $10 billion in dividends and to repurchase approximately $5 billion in common stock, combined a plan to return roughly $15 billion of cash to shareholders, in fiscal 26. This outlook is based on current market growth estimates, commodity prices, and foreign exchange rates, significant additional currency weakness, commodity or other cost increases, geopolitical disruptions, major supply chain disruptions, or store closures are not anticipated within the guidance ranges. So again, a solid start to the year, growing sales, and earnings and returning strong levels of cash to share owners as we look to strengthen investment and demand creation throughout the balance of the fiscal year. We continue to believe the best path to sustainable balanced growth is to double down on the strategy. Excellent execution of an integrated set of market constructive strategies delivered with a focus on balanced top and bottom line growth and value creation, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners. We are taking proactive steps to improve the execution of the strategy and our ability to deliver our growth and value creation objectives. With that, we'll be happy to take your questions.

If you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, press star followed by two. Your first question comes from the line of Dara Messinian of Morgan Stanley. Please go ahead.

Hey, good morning. So I just wanted to touch on the restructuring you announced back in June, given you're now a few months into putting the initial plans into place. A, just how do you think the organizational changes are being received internally by your workforce, given there's a significant reorg and also rationalization of the job roles at P&G? And then just B, the context externally is a more difficult top-line environment in general in CPG that's also volatile. So I just love a high-level overview of what the reorg does for the organization and P&G's competitiveness relative to that challenging broader industry landscape.

Good morning, Dera. Thanks for the question. Yeah, so let me both take both elements here in turn, starting with the progress we are making We are right now perfectly on track on all elements of the restructuring execution. This is never easy, especially when we're talking about reducing our enrollment. I think the organization is taking it in strides because the mission is clear. We have now constructive plans in every business around the world on which roles to reduce and how to organize ourselves with the vision of creating a more agile and faster executing better executing organization for the future so if you go through the three components of the restructuring program on the portfolio side this is just the regular execution of portfolio discipline we have now reviewed all brand country and and category combinations to ensure that we can add value. And in those where we found that we cannot add value, you see us changing the business model or reallocating resources. You heard us just talk about the projects that we can announce today, which is the business model change in Pakistan and some of the portfolio streamlining across our SEMCARE business, et cetera. So those elements are now clearly defined. We are working through the execution. And I feel very good about the progress we are making. We'll end up with a faster growing and more effective portfolio when we're done. On the supply chain side, these portfolio choices give us flexibility to take another look at our supply chain. And again, I think the product supply teams around the world now have firmly confirmed what the interventions are they want to make. and we are in execution mode. This will give us both a cost savings element, but also an agility and supply assurance element, which we feel very good about. The third component, the up to 7,000 manufacturing headcount reduction, really is the enabler for us to create smaller teams that are better set up We are fully digitally enabled data access and analysis to focus on the consumer and focus on brand building. And those org designs have now been developed. They are slightly different in every category as they should be because the context and the work in every category is different. But they have the consistent objective to create smaller teams that are focused on the brand They are digitally enabled, and we're building some of these technologies and platforms globally. Some of them are individual, and they will ultimately result in what I see as the third step of the organization evolution when we went from the thicket to fully enabled category end-to-end, now to smaller brand teams that are enabled by technology to be much faster and much more consumer-centric. And that combined with supply chain 3.0, which will change the way that our supply chain operates via automation and digital tools is very exciting for us. The short-term benefit is cost and fuel for us to be able to invest over the next 12 to 18 months into the very strong innovation programs that we're launching. I think the longer-term benefit is just an even strengthened portfolio and a strengthened organization.

Your next question will come from the line of Peter Galbo of Bank of America. Please go ahead.

Hey, Andre and John, good morning. Thanks for taking the question. Andre, I just wanted to maybe click in a bit more on some of the subcategories in North America, and in particular on fabric care and baby care, where you noted a bit more, I think, competitive activity Obviously, there's a list of innovation that you outlined over the coming year, but maybe you can just give us a bit more detail on what you're seeing real time from a competitive standpoint, both in North America fabric care and baby care. Thanks very much.

Yeah, good morning, Peter. Look, both are obviously big and important categories for us, and as you will have seen in the results, both are not delivering at the level that we want them to deliver. And as you pointed out, what we see is a heightened competitive environment, which is not unexpected, where consumers are a bit more careful in terms of purchase decisions and consumption. The market gets tighter. And some of the response, competitive response, is increased promotion. And that is certainly what we're seeing both in fabric care and in baby care. Our response to a more competitive environment has to be a more integrated answer, which is what we are executing across both baby and fabric care. So when we talk about driving integrated superiority, that's what we mean. And while value or promotion might be a component to that answer, the real solution here to create sustainable growth is to drive innovation and drive superiority, communicate that innovation with the right claims, meaningful to the consumer, meaningful to the retailer, get the retailer support online and in physical stores, and thereby create value for the consumer that is attractive. Where we've done that, specifically on baby care, we're seeing the results. So we've continued to innovate and stay ahead. on swatters, on cruisers 360, on the pants business, and we continue to do so and we see share growth. We have intervened on the value tier with Love Platinum Innovation, which we've launched in the fall of last year, and we have been able to grow share, even competing in what is probably the most pressured tier within the baby care portfolio. And we are now expanding that same approach to the mid-tier, launching the first wave of baby dry, which is our mid-tier innovation in the fall, and the second part of that innovation in the spring. And we are confident that the share pattern will follow the same playbook as we've seen. You've heard us talk about the innovation in fabric here. The tight liquid innovation is truly exciting. The biggest upgrade in 20 years, a significant investment, great commercialization. We believe that is the right answer to drive trade-in, trade-up, and continue to create category growth. We're adding on Tide Evo, which will add a completely new form to the category. And again, that's the path forward to drive category growth, share growth in a sustainable way. Last comment, this plan takes longer. It's not as easy as throwing promotion funding out there. But again, we believe that is the way to both create value for our consumers and for our retail partners and shareholders.

Your next question will come from the line of Lauren Lieberman of Barclays. Please go ahead.

Hey, thanks. Good morning. Just wanted to touch on the market share stats or the global market share down 30 basis points. I know that can be very impacted by geographic mix to some elements, but even just at the 24 of 50 category country combinations are holding or gaining shares is on the low side. you know, without asking for you to walk through the, you know, the 26 that are troubled, maybe just where might you call out some particular hotspots of activity, you know, things where is it a matter of macro and positioning and relative affordability at this time? Is it a matter of the innovation that's yet to come you think will be the answer? But it was a pretty stark statistic, and I'd love to get your thoughts on that. Thanks.

Hey, Lauren. Yeah, global aggregate share, as you point out, is down 30 basis points over the past three and past six months. If you look, the past one month, we're closer to flat. So the last reading is minus 0.1. But I would view that as normal variability. I think the hotspot, so let's talk with the US. Let's start with the US. I think we're coming from a very strong base period. And there are some categories where we clearly see increased promotional activity. We touched on baby care. We've seen very aggressive rollbacks and promotion activity in the baby care mid-tier section. We also see very intense promotions in fabric care. We've seen a period of intense promotion in oral care. So certainly the competitive aggressiveness has increased. And The way we respond is more structural. It takes a bit more time. While we will remain value competitive in the short term, we truly believe the right answer here is drive integrated superiority with innovation and investment in our brands. And the positive read of the US shares would be that if you look sequentially, we are actually increasing absolute share. So past 12, past six, past three, past one month, our absolute share in the US went from 33.6 to 33.9, to 34.1, to 34.9. So absolute shares are moving in the right direction. We are still annualizing a relatively high base period. But the plans are clearly in place, I think, to exit the year with share growth in the US. Europe is a very similar situation. Competitors have been not very active over the past years. And we see some of our competitors headquartered in Europe get back in the arena. which, if it's driven by innovation, is a good thing in our mind. It drives attention to the categories. But in some cases, it's also very heavy promotion. So if you look at Fabricare, for example, in our Germany business, we were up last year, same quarter, 33%. We are down this year because we have competitive activity in the market. The playbook is the same. We will continue to invest in integrated superiority. On the other hand, if I look at our China business, very strong progress. We probably started the right interventions in China because of a difficult market environment earlier, about two years ago. And with the interventions in innovation, the interventions in go-to-market capability, we now see solid progress in a difficult market environment. Again, China mainland up 6%, SK2 up, baby care up 20%. It gives us confidence that these interventions were driving. They take some time, but they ultimately result in what we want in terms of market growth and share growth. Last example I'll give you on the success, if we do this right, is Latin America. Again, 7% growth in the quarter, broad-based in Mexico, in Brazil, and in a lot of smaller markets, driven by a strong portfolio with strong innovation.

Your next question today will come from the line of Steve Powers of Deutsche Bank. Please go ahead.

Great. Good morning. Thank you. Hey, Andre, maybe talk a little bit more, elaborating on China, picking up on what you had just spoken to. A good result this quarter with Greater China up 5%. Maybe just a little bit more perspective about what you've seen evolving on the ground in that market, how the business was trending recently. entering the quarter versus how it exited, and just how confident you are in the relative progress you've seen so far just sustaining through the year. Thank you.

Thank you, Steve. Let me maybe start with the team on the ground and the interventions they have made. I think it was clear to the team that the consumer environment will not get easier. The competitive environment will not get easier. And therefore, we had to fundamentally change many of the variables that drive the business. And that's, I think, what the China team has done very successfully. They basically lifted up every part of the business model across all categories. They completely changed the go-to-market model, including the incentive system for the distributor network, which is critical in China. They've launched consistently strong innovation grounded in local insights. When I think about our baby care business growing 20%, that certainly is driven by absolutely superior consumer insights and innovation that matches those insights. And lastly, they've changed the way we communicate with consumers and the way we collaborate with our most strategic customers, many of them online businesses. So all of that has resulted in, I think, a... good turn of the business it is China so I'm not pretending that this will be a straight line this can go up and down but now we have two points on that we can connect and both points are pointing in the right direction but again I would I would urge us to be also cognizant of the fact that we're dealing with a volatile market environment A couple of examples that we are particularly proud of, number one, SK2, just the discipline with which the team worked on the brand fundamentals, on strong innovation, having the courage to launch a super premium in addition to the core, I think is paying dividends. SK2 up 12%, and even the travel retail business has now turned positive. We have streamlined our fabric care portfolio, launched innovation that is truly superior. The business is up five points. The hair care business, where we've been able to innovate, is growing. And on the skin care business, the mass skin care business, Olay is growing. And skin and personal care in aggregate is growing 8%. And I mentioned baby care. So while the consumer sentiment is still somewhat less confident. I think the team has found a way to break through. Don't expect it'll be a straight line, but I feel very good about the progress we've made.

Your next question will come from the line of Rob Odenstein of Evercore. Please go ahead.

Great. Thank you very much. I want to swing back to the U.S., and there was a lot of talk about the need for competitive promos that are going on in the market. And I guess my question is, as you look at the other side of that, which is the consumer side and the research you're doing on the consumer, has affordability become a bigger driver of consumer choice in the quarter? Do you expect that to continue? And then specifically, If that is the case, that it is a bigger driver, how do you look to address, you know, affordability, you know, apart from innovations, but, you know, looking at whether it's a change in shift and channel strategy, you know, RGM, price pack architecture, you know, other ways to get at affordability issues? Thank you.

Thanks, Robert. I wouldn't call it affordability. I would say value is clearly in the center of the equation, and value defined as price over integrated performance, which is the other four vectors that we're talking about. We continue to see consumers trade up. price mix is positive, mix is positive in the US, where the value equation is attractive for consumers. In some channels, we see the majority of growth in our categories in the premium end, not in the value end of the lineup. We also see continued decline of private label. Actually, private labor shares in the U.S. are now down 50 basis points. So for the first time, private labor shares dropping below 16%, which was kind of the historical threshold. And as I mentioned, our sequential value share is actually improving by more than a point, even though we've not quite caught the base period yet. I think the right answer to the environment we're in is to serve the consumer where they want to shop and with the cash outlay and the value tier that they are prepared to go after. And I think we have built very strong price ladders across different tech sizes. We continue to optimize those. So we find in some channels that we might have cross price points. Relative to competitive offerings that we need to adjust. We will adjust those quickly But we are present in every channel across the US So we can compete with the right price points both on shelf and in promotion as we need to We continue to innovate across every value tier You heard me talk about love for example in baby dry in baby care but we're also innovating at the top end and both are successful if we do it in if we if we do it right i think the channel play is interesting because the consumers continue to move into a good part of the consumer continues to move into larger pack sizes they shop in mass in club and online and so we need to make sure that we have the right value offering there and we're working on that with all of our retail partners and then Some consumers continue to live paycheck to paycheck, and they are looking for smaller cash outlay. They're really looking at low promoted prices so they can stretch the paycheck a little bit longer. And we're, again, very intentionally driving our competitiveness there. But again, I come back to where I started. I wouldn't say it's affordability. I think it's sharper value. And how we present that value to the consumer is critical. And we don't believe it's just price. We believe it's the combination of all five factors that we need to integrate.

Your next question will come from the line of Chris Carey of Wells Fargo Securities. Please go ahead.

Hi. Good morning, everybody. I wanted to follow up on your commentary in China, Andre. It sounds like SK2 and Olay and as such your broader skin and personal care business in China were similar to last quarter. Correct me if that's wrong, but I do think it implies then that you're seeing improvement in businesses outside of that skin and personal care segment in China. Would you agree with that assessment? And are you seeing signs that that improvement is durable or were there any factors? that are specific to the quarter that may have helped that business. So I just wanted to test that just a little bit. Thanks so much.

Yeah. Hey, Chris. No, good pressure test. You're right. I think we're seeing our skin and personal care business is moving along. It's slightly accelerating in terms of growth rate, but we see consistency in terms of results getting better. We also see the other categories picking up pace. As I mentioned, fabric care is up now 5%. We made portfolio interventions. We have strong innovation out there. We're driving distribution. Our fem care business is growing. Our hair care business is growing with a more streamlined and focused portfolio. Baby care continues to accelerate with 20% growth. So the breadth is comforting. And the other comforting fact is that we understand what we did and what it's doing in the market. So our approach to how we define superiority and how we execute it, I think it's paying dividends. So that's reassuring that better consumer understanding, innovation that is grounded in that understanding with better shelf and retail execution online and in stores is paying dividends. So I have a high level of comfort with the results and the breadth of results and how we accomplished them. It's still China. So we will continue to observe. We continue to expect some volatility here. We continue to expect strong competitive activity. But if I had to summarize, I think we're well positioned to continue to build the business in China. The market hopefully will strengthen over time, which will be a tailwind and will keep track of where we are over the next two quarters.

Your next question today will come from the line of Andrea Teixeira of JP Morgan. Please go ahead.

Thank you. Good morning. I was trying to, Andrea, to dive into a little bit more on the price mix and then by categories. I know you had invested more in loves and in particular in diapers in the US. So I was hoping to see if you've seen a response from the consumer. You did say that consumers in general have been into premiumization, but obviously that's a picture, an overall picture. I wonder if you can kind of give us some examples of ways that Procter has been more active in pivoting for that low-income consumer and in categories where they are looking for value in not only in diapers, but also in paper goods. Thank you.

Thanks, Andrea, for the question. The first part of my answer will sound familiar, but where we choose to play, we choose to be superior. And that's across all value tiers. So when we innovate, we innovate across all tiers. So for example, the most recent auto dish innovation on Cascade was a formula upgrade across the super premium, the premium, and the mid-tier. As we've talked many times on this call already, we've upgraded our product lineup on the super premium, the premium side, and diapers, the value side of diapers, and we are about to upgrade the mid-tier. The same is true across categories. In Olay, for example, the most successful lineup is the SuperSerum lineup right now. And that's at a premium to the market. And we're driving innovation on the jars business with better execution, better packaging, a shelf reset, which is going into the market starting in OND. And when we get this right, the consumer responds. We see volume share growth and value share growth. And we see trade in and trade up, which is ultimately what we're trying to accomplish. So when we're upgrading TideLiquid, we're also upgrading the other forms and tiers within the laundry lineup. For example, we're upgrading the gain lineup as well. And that combination of tier approach with the right pack sizes, as Robert pointed out, with the right channel distribution, and the right promotion strategy to drive trial is what drives the response. Now, we've not done that across the full portfolio in the U.S., and that's really the work that we are approaching over quarter two, quarter three, and quarter four that is enabled by the productivity progress, by the restructuring that allows us to push the investment And I feel very good about the aggregate of the plan. But you're pointing exactly at the right thing. We need to be sharp on integrated superiority in every value tier in which we play. If we do that, the consumer responds. And we have the examples that I just mentioned to confirm that that still works.

Your next question will come from the line of Filippo Filorni of Citi. Please go ahead.

Hi, good morning, everyone. Andrea, I wanted to ask on some of the items that you called out in the guidance, you clearly lowered the headwind from commodities and tariffs. So maybe if you can give us some more color, what drove that lower headwind on those two items? And then if you sum up all the items that you call out, it's now like a 19 cents headwind before it was 39 cents. So you have some flexibility about 20 cents, but obviously the EPS guidance is unchanged. So can you walk us through like what is the offsetting factor? It seems like there's probably more investment in promotion and marketing to offset some of the competitive environment that you're seeing in the promotional environment, but maybe help us understand where is the incremental 20 cents of benefit being reinvested in. Thank you.

Thanks, Filippo. The commodity headwinds, you see the news on the petro complex. Oil is coming down. That's helping us on the energy side. And the tariff environment continues to be volatile. But the biggest help on tariffs has been exclusion of materials natural materials and ingredients that cannot be grown in the US. So when you think about eucalyptus pulp, when you think about psyllium, which is the core ingredient in some of our PHC products that is imported from India. So the administration having an open ear to adjust policy where product or ingredients cannot be produced in the US. Retaliatory tariffs coming down. Canada rescinding retaliatory tariffs of 25%, which just happened before the last quarterly call. And so those components in aggregate are representing the commodity and tariff headwinds. On the question of guide impact, I will tell you there's really, you called it out, right? Number one, we're in quarter one. So it's still very early. And as you can see, the tariff environment can change very quickly. You heard the administration's comments on Canada. And so there's still volatility in the impact for the year. Number two, a lot of the commodity, a lot of the tariff changes, so for example, Canadian tariff rescinded, was linked to pricing. So as the tariff goes out, so does the pricing. So the net effect on the P&L within the year is limited. So volatility, it's still early, and you're very right. We want to absolutely preserve our ability to continue to invest because we have proof and we continue to be convinced based on the consumer reaction to where we successfully invested in integrated superiority that this is the right path forward. Is this the path to stimulate category growth back to 3% to 4%? And within that, a path for P&G share growth in a sustainable way. So early in the year, still volatile, preserve investment.

Your next question will come from the line of Peter Grom of UBS. Please go ahead.

Thank you, and good morning, everyone. So I wanted to ask a follow-up on North America. Andre, I think you mentioned consumption decelerated throughout the quarter, and you alluded to some of the phasing considerations. related to the pork strike a year ago. So just maybe first, how do you see your underlying category demand evolving from here? I know it might be a little bit hard now because you're laughing some of these impacts, but just curious whether you would expect this deceleration to continue. And then just related on the comment on the pork strikes that will make 2Q the softest quarter, is there a way to frame how much of an impact these last will have, or maybe how much of a step back you would expect from where we started the year? Ben.

Morning, Peter. Look, I think the North American consumption decelerated. So that's correct. We probably entered the year at about a strong 2%, 2.4% value consumption. We're now a week or two, so 1.8%, 1.9%. Some of that is just variability of base periods. But I do believe that for the next two quarters, the consumption will be around the 1.5 to 2% range. And as you said, particularly in quarter two, because of the fourth strike in October and then the threatened fourth strike in January, what we expect to see is that the run rates of consumption, both on the market side and P&G side, is probably going to continue. But you have a point higher base period. So that's probably the best way I can describe what we're expecting. And if there's two things you need to take away, quarter two is going to be lower than quarter one, and half two is going to be higher than half one. That's about the best logic I can give you. Over time, maybe last comment, in the not too far future, if we are successful with everything we're doing with the investment, we expect category growth to return to 3%, both in the US and at a global level. And again, that's job one, two, and three, drive more users in the category, drive more usage, and drive value per use. That's how we get back to 3%.

Your next question will come from the line of Olivia Tong of Raymond James. Please go ahead.

Great, thanks. Two questions for you, Andre. First, in terms of the regional outlook, Obviously, you just talked about the US. You've been pretty guard in terms of China. But what about rest of world? Just thinking through dynamics with respect to demand, how the consumer is doing in Western Europe and Latin America in particular. And then in terms of some of the restructuring actions that you've taken, you mentioned some of the portfolio changes in the Middle East and then also in femcare. Can you expand on that a little bit in terms of potentially bigger changes to the portfolio to make a step change in terms of the growth trajectory, either more substantial culling of the portfolio or potentially looking the opposite way in terms of filling some of the gaps within organic growth? Thank you.

Thanks, Olivia. Dynamics in Western Europe very similar to North America Volume growth in the categories that were in about one percent value growth around two percent week two And effectively the same dynamics I described in in in North America LA continues to be Strong we saw seven percent growth in the quarter last quarter was very strong And we continue to drive market growth in the region strength in Brazil up 6 or 7 percent, Mexico up 4 percent. So the LA region is doing well from a consumer standpoint and from a P&G standpoint. Asia, Middle East, Africa, and Europe enterprise markets more muted, both geopolitically from a consumer standpoint and from a competitive standpoint. I expect that not to change. So in aggregate, I would say enterprise markets probably around 3 percent. 4% developed markets, Europe, North America, round two. China is the wild card. Still negative in terms of market growth, but again, we're making good progress. So that's as much perspective as I can give you. On the bigger portfolio changes, look, the portfolio actions we are executing are really on the fringes, right? We are making sure that we do, what we should do is ensure that we can create value in every category country combination in which we are, and if not, make the appropriate changes. And the type of change you see us announce in this release, that's about the type of change you should expect. There's nothing more dramatic that we're planning to do. We're very comfortable with the core portfolio that we're in. We've chosen these 10 categories very carefully. And we continue to believe these are attractive categories in which P&G can continue to drive growth. We have talked about the growth opportunities within the existing portfolio across regions, driving our brands in North America, serving underserved consumers in North America as a $5 billion opportunity, getting Europe consumption in the European markets to best in class in Europe from a household penetration standpoint is $10 billion. And driving enterprise market penetration in those markets that are similar GDP per capita as Mexico to the same level of consumption in those categories in Mexico is about $15 billion. And as I said last time, these are numbers on a piece of paper until you start allocating resources to those ideas, and that's exactly what we're doing. That's exactly why we want flexibility to invest. So we can drive the consumer insights, we can drive the innovation that goes after these growth opportunities. And if you add them up, you'll find that they will allow us to grow with an algorithm for the next five to 10 years. So there's no need to have any transformational acquisition on inorganic growth opportunity added. If there is an attractive opportunity, we'll always look at it.

Your next question will come from the line of Nick Modi of RBC Capital Markets. Please go ahead.

Yeah, thank you. Good morning, everyone. Andre, I was hoping maybe you can just kind of opine on agentic commerce and, you know, how you think P&G can, you know, leverage some of the advantages you have in kind of the brick and mortar shopping environment to this kind of new world that we're walking into, especially given the announcement with OpenAI and Walmart. So just any thoughts you have I mean, you know, the big question I have is just how do suppliers get their products in the actual basket if people are shopping through prompts? Any thoughts would be helpful. Thanks.

Thank you, Nick. Indeed, an interesting question. And the way I think about it is it is all opportunity, right? I mean, if you think about it, we're in business for 187 years. We went from Kendall store to supermarkets, to hypermarkets, to online shopping, to social commerce, all an opportunity. We went from newspaper ads to radio, to TV, to internet, to social media, all an opportunity. So I think it's about getting ready for that reality. Um, and I do believe that it, it, it opens up new possibilities for brands to make themselves visible. And it all comes back to the underlying fundamentals. Do you understand the consumer? Do you understand how they look for information? How the agent will find your product? How the agent will extract the information to decide whether your product should be in the basket or not? And how you work with your retail partners to ensure that you have the best understanding and the best access to these algorithms so that you can communicate your superior brand proposition every day and every shopping opportunity. And that's the path forward. I feel we're well positioned. I feel our data infrastructure, our consumer understanding, our collaboration with retail partners is very good. And so, again, for me, this is all opportunity.

Your next question will come from the line of Tamil Godzerwala. of Jefferies. Please go ahead.

Hey, good morning. Just a couple of clarifying questions. There was a commentary around tariffs and sort of natural products being exempted. Were there any particular deals or maybe just that the threat wasn't as much as what perhaps you had estimated earlier? And then on China, a lot of conversations around distribution and distribution changes. Was there anything one time in there as it relates to sort of a near-term benefit from flipping into a new distribution structure, or is what we're seeing more related to an improvement in consumption? Thanks.

Thanks, Kamil. The change on the tariff side was before these products or these materials and ingredients were included in the overall tariff structure. And I think what the administration then has done is basically grant exceptions, broad exceptions in some of these tariff frameworks for those materials that cannot be grown in the U.S., which is highly appreciated and makes sense. On the China question, we've made these interventions on distribution network in the fall, summer and fall of last year. I know there were not any one-time distribution gains that drive these results. It is just a streamlining and changing the incentive system for the distributor network. So we have fewer distributors. They are better aligned to what we're trying to do in terms of quality execution in stores and online, and that is starting to pay dividends. So this is not a one-time effect or one-time bump. This is actually the new go-to-market approach, starting to pay dividends. And if everything goes well, I expect that benefit to actually slowly accelerate over time.

Your final question today will come from the line of Robert Moscow of TD Kalman. Please go ahead.

Good morning, this is Victor on for Rob Moscow, and thank you for taking the questions, too, for me as well. So I think previously there was a discussion of taking a mid-single-digit pricing on about 25% of your USQs to mitigate the tariff impact. So now that the tariff impact is half of what it was before, curious on how that affects your pricing strategy at all. And then on LATAM, you know, we've heard from competitors of consumer weakness and, you know, from a challenging macro backdrop. Are you seeing this impact your trends at all? And if so, how are you performing so well? And did you gain public category share in the region? Thank you.

On the pricing question, yeah, we've taken in the US, we've announced pricing in July. It's gone into effect in September. Most of the pricing was innovation driven. And in aggregate, it's about a two, two and a half percent price increase across the entire portfolio. The underlying tariffs that have contributed to the need for pricing have not really changed. The biggest change in the tariff exposure has been retaliatory tariffs on the other side, and those pricing effects have been taken out. I was talking about Canada. But in the US, the majority of the pricing was underlying innovation-based, with tariffs being a contributor but not the main contributor, so no change to pricing approach. I think we've talked about the consumer backdrop in the US plenty. We've talked about the share development. While we haven't fully annualized our base, we continue to make sequential progress in absolute share, and we expect to exit the US with neutral to share growth. by continuing to give the consumers better value propositions via integrated superiority every day. So I'll bring it back to integrated superiority to end the call. So if there are no more questions, I want to thank you for your time and thank you for your support of the company. We continue to double down on the strategy. We feel we are well set up, both from a funding standpoint, from a strategy standpoint, with the right innovation at hand. And we'll continue to drive forward. Thank you very much.

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