P&G (PG) Q1 2027 Earnings Call Transcript

DATE

Oct. 22, 2026

CALL PARTICIPANTS

• Chief Financial Officer - Andre Schulten
• Senior Vice President of Investor Relations - Keri Cohen
• Senior Vice President of Investor Relations - John T. Chevalier

TAKEAWAYS

• Net Sales -- $23.3 billion, representing a 4.0% increase driven by broad-based expansion across all business segments.
• Organic Sales -- 4.0%, reflecting sequential progress from targeted category and country interventions and increased consumer consumption.
• Core EPS -- $2.00, an increase of 1% versus the prior year as top-line growth was partially offset by higher operating costs.
• Volume -- 2.4 points, contributing the majority of the organic sales growth for the quarter.
• Pricing -- 0.4 points, providing a minor positive impact as the company balanced pricing with product innovation.
• Product Mix -- 1.1 points, reflecting a consumer shift toward more premium product offerings across multiple regions.
• Core Gross Margin -- 50.0%, representing a decrease of 150 basis points due to 140 basis points of higher commodity costs and 140 basis points of product reinvestment.
• Core Operating Margin -- 25.9%, a decrease of 80 basis points driven by increased demand creation investments and commodity headwinds.
• Productivity Savings -- 250 basis points, helping to mitigate headwinds from higher raw material and energy costs.
• Free Cash Flow Productivity -- 93%, with $5.8 billion in operating cash flow and $4.8 billion in net earnings reported for the quarter.
• Dividends -- $2.6 billion, returned to shareowners as part of a total planned cash return of $15 billion for fiscal 2027.
• Share Repurchases -- $1.3 billion, with a full-year target of approximately $5 billion in common stock buybacks.
• Beauty Segment Organic Sales -- 5.0%, led by mid-single digit growth in hair care, personal care, and skin care brands.
• Grooming Segment Organic Sales -- 5.0%, driven by innovation-based pricing in North America and favorable product mix.
• Health Care Segment Organic Sales -- 3.0%, with oral care and personal health care both reporting low-single digit growth.
• Fabric and Home Care Organic Sales -- 5.0%, reflecting volume increases and favorable product mix in North America and Europe.
• Baby, Feminine and Family Care Organic Sales -- 3.0%, supported by mid-single digit growth in the baby care category.
• Greater China Organic Sales -- 8.0%, led by performance in SK-II and Pampers, with the latter benefiting from near-term competitive dynamics.
• Commodity Cost Headwind -- $1.4 billion after-tax, assuming a Brent crude oil price of $100 a barrel for the remainder of the fiscal year.
• Net Interest Expense -- $300 million higher after-tax, primarily due to debt issuance related to recent merger and acquisition activity.
• Core Effective Tax Rate -- 20% to 21%, according to updated management forecasts for the full fiscal year.
• Capital Spending -- 4.5% to 5.5% of net sales, focused on capacity expansion and supply chain optimization efforts.
• North America Volume -- 3 points, driven by improved consumption trends and higher market share with top retailers.
• Tariff Impact -- $90 million, resulting from a refund recognized during the first quarter.

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RISKS

• Schulten stated, "Due to the duration of higher oil prices, we now expect materially higher cost headwinds in Q2 and the second half of fiscal 2027," noting the impact of spot prices exceeding previous forecasts.
• Schulten warned that the company will be "closely watching consumer demand as high fuel and energy costs persist into the fall and winter" as a potential risk to top-line momentum.
• Management noted that organic sales guidance includes a headwind of 30 to 50 basis points from planned brand, product form, and go-to-market discontinuations.

SUMMARY

The Procter & Gamble Company (NYSE:PG) reported organic sales growth of 4.0% in the first quarter of fiscal 2027, with management citing sequential progress from targeted category and country interventions. The company reported expansion across all 10 product categories and six geographic regions, driven primarily by volume increases rather than pricing. Management maintained its full-year organic sales and earnings guidance while raising its all-in sales outlook to reflect the acquisition of Thorne. The results included an estimated $1.4 billion after-tax commodity cost headwind for the fiscal year, which the company intends to offset through productivity initiatives and innovation-based pricing.

• Schulten noted that Greater China organic sales growth benefited from "near-term competitive dynamics," which contributed to Pampers volume growth of close to 50% in the region.
• Management reported that a restructuring program involving a 15% reduction in non-manufacturing headcount has begun to contribute to selling, general, and administrative expense leverage.
• Schulten indicated that the Thorne business will maintain its core leadership and operate as a separate entity while utilizing P&G's global supply chain and marketing capabilities.
• The company reported that over 70% of its top U.S. customers are now holding or growing market share, an increase from 50% in the second half of fiscal 2026.
• Management stated the launch of the premium Pampers Amoira diaper is projected to exceed $100 million in sales during its first year in the U.S. market.
• Schulten indicated that while the cold and cough season has been slow over the past two years, the company has seen a recent acceleration in healthcare product demand.

INDUSTRY GLOSSARY

• Amoira: A premium diaper product line launched under the Pampers brand focused on skin health and premium materials.
• SK-II: A premium global skincare brand within P&G's Beauty segment.
• IMEA: The P&G geographic region consisting of India, the Middle East, Turkey, and Africa.
• IEPA: The International Emergency Economic Powers Act, relating to the context of tariff-related cost recoveries.
• Thorne: A health and wellness company recently acquired by P&G.
• CPG: Consumer Packaged Goods.

Full Conference Call Transcript

Operator: Morning, and welcome to Procter and 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 and 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 and 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 Schulten.

Andre Schulten: Good morning, everyone. Joining me on the call today are Keri Cohen and John T. Chevalier, our Senior Vice Presidents of Investor Relations. I will start with an overview of results for the first quarter of fiscal 27 and discuss the progress we are making against our near term priorities and longer term transformation efforts. I close with guidance for fiscal 2027 and then we will take your questions. We are pleased with the continued acceleration in top line results in our first quarter of fiscal year 27. Bottom line results reflect the strength of the top line progress and productivity to offset the higher costs from raw materials, energy and increasing freight costs, primarily in North America.

We expect these headwinds to increase in the next few quarters, Taken together, we remain on track to deliver within our guidance ranges for the fiscal year. Before I share the detailed results, you may have noticed in the press release beginning fiscal year, we will report sales growth to 1 decimal place at both the company and the sector level And with that, organic sales increased 4.0% versus the prior year. We see sequential progress from our targeted interventions at the category and country level. By delivering superiority, we are winning with consumers and driving improved consumption, semester over semester into this first quarter. Volume increased 2.4 points Pricing was up 0.4 points.

And mix was up over 1 point for the quarter. A solid balance across top line drivers and with the majority of growth driven by volume. We delivered broad based growth across the business, with each of our 10 product categories growing organic sales. Fabric Care, Home Care, Baby Care, Hair Care, skin and personal care, and grooming grew mid singles. Family care, feminine care, oral care, and personal health care each grew low single digits. Growth was also broad based geographically, with each of our 6 regions growing organic sales. Focus markets were up 4%, organic sales in North America grew 3%, and The US market also was up 3%.

In North America, volume was up 3 points, driven by continued improvement in consumption across categories. We now have over 70% of our top U. S. Customers holding or growing share, up from less than 10% in the first half fiscal 2026, and 50% in the second half of last fiscal year. Europe region was up 4%, with all key markets growing led by high single digit growth in The UK. Greater China organic sales grew 8%, continued strong growth in what remains a challenging consumer environment Pampers and SK-II led the growth. With SK-II up 12% and Pampers up close to 50%, benefiting from near term competitive dynamics.

Enterprise markets in aggregate grew 5% for the quarter, Note the makeup of enterprise markets has changed this fiscal year. Now made up of Latin America, Asia Pacific Enterprise, and our newly combined IMEA or India, Middle East, Turkey and Africa region. This change emphasizes the growth opportunity across emerging markets, and creates a 1 Europe region structure to simplify the Europe operating framework. Latin America organic sales grew 4%, led by Mexico up double digits and Brazil up low single digits. Organic sales in the IMEA region grew 8%. APAC Enterprise was up 2%, still impacted by our portfolio restructuring impacts. Global aggregate market share is flat versus prior year across all time periods.

29 of our top 50 category country combinations held or grew share fiscal year to date, up from 25 in the second half of last fiscal year also a reflection of the progress being made across the portfolio. On the bottom line, core earnings per share were $2, up 1 point versus prior year on a currency neutral basis core EPS was in line versus prior year. Core gross margin was down 150 basis points, and core operating margin was down 80 basis points versus prior year. Strong productivity improvement of 250 basis points was offset by commodity and freight costs in addition to demand creation investments. Currency neutral core operating margin was down 90 basis points.

Free cash flow productivity was 93%, We returned $3.9 billion of cash to shareowners in this quarter, €2.6 billion in dividends and $1.3 billion in share repurchase. In summary, this was a strong start to the year, Positive sales and share trends across markets consistent with the semester to semester progress we expected behind the interventions being executed across categories, countries, and customers. As we move forward, the fundamental elements of our strategy remain unchanged. We are in the right categories to deliver against our growth goals. These categories are our core competency. We know how to grow these categories and win with superior innovation, better execution, clear communication.

Know how to create value in these categories, and we have a proven track record to fund growth via productivity. Have an organization focused on delighting consumers, and winning with our retail partners. What we are changing is nearly every part of our execution framework to identify superiority gaps even faster, and respond quickly to changes needed. To product package communication retail execution or value, to ignite user growth of our brands. The adjustments we have made are starting to take hold Let me share a few examples. US Pantene, abundant and strong, started with a deep insight and consumer connection. More than 50% of women will experience noticeable hair loss in their lifetime.

In the United States alone, female pattern hair loss affects approximately 30 million individuals Pantene's abundant and strong technology grew from research linking scalp oxidative stress to poorer scalp conditions and hair quality. This led to the development of Plantain's abundant and strong collection with a provitamin complex, proprietary formulation. Consumers are delighted with improvements in hair strength, and less shedding with delightful fragrance, and a tingling sensorial experience in the shower. Pantene is delivering mid single digit sales growth in The US, and is growing share.

Pampus Prestige Has Been A Significant Growth Driver Of Our China Baby Care business with mid teen growth consistently over the past 8 quarters, but we took the same consumer insight and brought the very best diaper available to The US with the Amoira launch in the second half of last fiscal year. Amoira is our most advanced and premium diaper, combining proprietary skin health technologies and premium materials for superior protection, and cashmere like skin comfort. Built on an engaging social first brand building model, and inspired by insights that fewer babies in each household means parents spend more per baby.

Andre has been 1 of the most successful launches across multiple retailers, contributing to Pampers share growth and projected to exceed $100 million in sales in year 1. In the Gulf Cluster, UAE Oman, Qatar, Kuwait and the percentage of sales growing household penetration increased 4x. From 15% in fiscal 25 to over 60% in fiscal 26 despite the market volatility. Ferry Dish delivered double digit growth in fiscal 26 into the first quarter of fiscal 27. After the team transformed how consumers engaged with Ferry. Created a consumer led user generated content campaign that brought to life the toughest dishwashing moments consumers face generating a record breaking engagement at 20x our branded content benchmark.

As a result, Ferry reclaimed its position as the market's leading equity brand and grew the category by 4 points and P&G's share by 2 points. The other examples we have discussed recently also continued to deliver strong results, including U. S. Tide boosted, and evo, Mexico Fabric Enhancers, Brazil Hair Care And U. S. Personal Care. While we continue to execute our plans in the near term to sustainable growth, we are also making progress on a long term reinvention of P&G capabilities to become what we call the CPG company of the future.

We are adapting our capabilities, systems, organization structure to take advantage of significant growth opportunities we see across our markets, and overcome the external landscape changes impacting our industry. We are leveraging the deepest and most extensive consumer understanding in the industry driven by learning, and data for millions of consumers. This understanding leads to insights and signals that drive faster and better innovations grounded in industry leading research, development, modeling, and testing capabilities. We have the strongest ability to authentically engage consumers, building on our trusted and loved brands.

We have wide spread access to consumer path to purchase via strong retailer partnerships, and our supply chain is a differentiator where a resilient agile supply chain is critical to respond to global volatility, and cost pressures. We have the highest output productivity program in the industry, Winning with consumers is what matters. And the companies that can best respond to the changing environment and leverage the fast evolving technologies and capabilities to follow the consumer closely are the ones that will truly lead the industry. We intend this to be P and G. Moving to guidance.

As you saw in our press release this morning, we are maintaining our fiscal 27 guidance ranges across organic sales core EPS and free cash flow productivity. We expect the environment around us to remain volatile and challenging, from cost to currencies to consumer, competitor retailer and geopolitical dynamics Our all in GAAP outlook now includes the Thorn business, which closed in early October. We continue to expect sales growth of 1% to 3%, We started the year above this range, but we expect growth to be volatile quarter to quarter due to base periods dynamics. Also, we will be closely watching consumer demand as high fuel and energy costs persist into the fall and winter.

As a reminder, our top line guidance includes roughly 30 to 50 basis points headwinds, from product and market exits that are part of our restructuring work. Our bottom line guidance is for core EPS growth of 0% to 3%, versus prior year, and this equates to a range of 6.89 to $7.11 per share. This outlook includes a cost headwind of approximately $1.4 billion after tax, driven by higher raw material, energy and transportation costs, and other premiums resulting primarily from the conflict in The Middle East This estimate assumes an effective Brent crude oil price of $100 a barrel Due to the duration of higher oil prices, we now expect materially higher cost headwinds in Q2.

And the second half of fiscal 2027. Expect the foreign exchange headwind of approximately $50 million after tax, We also expect approximately $300 million of higher net interest expense after tax around €150 million higher due to the debt issuance related to recent M&A activity These impacts start in the second quarter. Finally, we still forecast $150 million after tax of lower non operating income. We now expect that our co effective tax rate will be in the range of 20% to 21%.

Combined input costs, foreign exchange items below the operating line will be roughly $1.9 billion after tax headwind of earnings, in fiscal 2027 or $0.79 per share 11% of fiscal 2026 core EPS versus the €0.56 per share or 8% impact shared in July earnings call. We expect capital spending will be between 4.5% to 5.5% of sales. We are forecasting free cash flow productivity at 85% to 90% for the year, We expect to pay over $10 billion in dividends and to repurchase approximately $5 billion of common stock combined a plan to return $15 billion of cash to shareowners in fiscal 2027. The guidance range reflects the continued acceleration toward our long term algorithm.

It is a balanced outlook between top line and bottom line despite significant cost pressures reflecting current market realities for consumer demand. We will maintain strong investment in the business, balanced by a strong productivity program with an intent to improve results semester by semester and year by year. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates, significant additional currency weakness, commodity cost increases, geopolitical disruptions tariffs, major supply chain disruptions, or store closures, are not anticipated within the guidance range. In summary, challenging markets like the ones we compete in today an opportunity for P&G to lead. We have the brands, the capability, and most importantly, the people required to win.

We are confident in the short term progress we are making behind deliberate plans to drive user growth of our brands and execution of excellence across each category and country combination. It will not be a straight line. Especially quarter to quarter and volatility will remain a near to midterm reality but we are building momentum with consumers and customers and we are excited about the long term opportunities ahead. With that, we will be happy to take your questions.

Operator: Or you would like to withdraw your question, press star followed by 2. Your first question comes from the line of Lauren Lieberman of Barclays. Please go ahead.

Lauren Lieberman: Great. Thanks so much. Good morning. We had to go back a ways in our model to find the last time that P&G posted volumes up more than 2% and organic at 4%. But when we found that time, which is back in, I think, 22, optically, margins are up a lot more this time around. And I was just curious if you could talk about if that is something specific to the quarter, mix dynamic, comp dynamics, something has changed structurally so that you are going to see much greater operating leverage at this level of volume growth. Thanks.

Andre Schulten: Good morning, Lauren. Thanks for the question. I think it is a combination of quarter specifics and structural. So let me start with the structural maybe. When we see growth around 4% and volume growth at or above 2%, we have always seen leverage. Think that leverage structurally is increasing. Number 1, on the cost of goods side, the level of productivity we are generating is increasing. And the amount of automation and digitization is helping us as we talk for many times. As we execute Supply Chain 3.0. So there is operating leverage on the COGS side. The restructuring program, including the 15% headcount reduction in non manufacturing headcount, is starting to impact the quarter this fiscal year.

Recall, we started the execution last fiscal year, first semester. So we are starting to get impact flowing through the P and L. And that is helping our SG&A leverage. The third structural component as we transform our brand building efforts to include the revised consumer path to purchase drive engagement at every 1 of those touch points. We remain fully invested in the business, but we find ways to make that spending work harder for us.

So that is driving top line growth at flat spending, and that is giving the third structural element of the leverage I think what is more specific to the quarter is the fact that we have only seen partial flow through of the commodity impact in the first quarter Again, the oil price and petrol complex keeps increasing. So we have outlooked at $100 a barrel $1.4 billion of after tax impact. that is 8% for the year of earnings headwind. In Q1, we only saw 5% headwind. Year over year. So that is a little bit of a onetime that will be correcting itself as we get towards the ongoing oil price impact through the P and L.

And for sure, if oil stays at the levels that we saw this morning, north of 010, that will continue to be an increasing headwind for the year. The last point I will give you is we had the second part of the IEEPA tariff refund in quarter 1. Of about $90 million And so those are the 2 that are more specific to the quarter. I think most encouraging for us are the first 3 we truly drive leverage because we are improving the structural leverage within the P and L.

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

Steve Powers: Great. Good morning. Thank you very much. Andre, obviously, a very strong start to the year. I wanted to ask around the sustainability of the momentum that we have seen start to emerge from 2 perspectives. 1 is just very, tactically in the short term. We think about this first semester, the December quarter, were there any shipment timing, competitive factors, or other dynamics that may have materially flattered 1Q at the expense of 2Q in your mind? Just want to get underneath that if I could. And then stepping back more generally, as you look at the underlying performance across your 10 categories, I think you said growth across all 10.

Where do you feel sustainable momentum is maybe best established versus where you feel there is still more work to do within those within those categories? Thank you.

Andre Schulten: Morning, Steve. In summary, I would tell you is Q1 was a great start. Every region growing, every category growing, And most encouragingly, if we look at the last few weeks, share is trending up consistently. So that gives me confidence. I would still tell you we expect H1 to be at about 3% organic sales growth. that is what we want to deliver, that sequential acceleration semester by semester. You recall H1 of last year 1.5%, 2.2%, and we think the right estimate and the right approach for cadence here is 3% in the first half, and then acceleration into the second half.

As you know, there is always a little bit of wobble between merge events on when they ship that is been a little bit of an effect that we saw in Europe, for example. And so there might be point shifting from 1 quarter to the other, But I think the overarching headline that I want you to take away is 3% for H1, and slight acceleration in half 2, which means consistent value and volume share growth. Throughout the next quarters. I am excited, quite frankly, about the progress we are making across each of the categories. Mean, you look at fabric and home care growing strongly, with North America now growing at 5% in Fabric Care.

We are growing across laundry, and we are growing across fabric enhancers. there is tons of runway. Baby care consistently growing at a global level, even if you exclude the China acceleration we have very strong results in baby. Sempre doing great. Adult incontinence improving. Beauty care at 5%, very strong. And across all 3 segments within beauty care. So I could continue but basically, you are getting the point. Every category is showing great progress and momentum. I will tell you, we are about 60% down the path of fixing each category country combination. We are running at 29 out of 50 top category country combinations growing or holding share. We need to we need to conquer the rest.

And that is the task ahead. I will tell you our beauty team is not content with 5% growth. there is way more opportunity in that space that we need to capture. Family care is not yet back to share growth. Interventions we are making across price point corrections in the club channel, the launch of Charmin and Bounty Essentials, all of those pushing momentum in the right direction. But we have not yet seen the share turn. Our healthcare business has been impacted by a slow cold cough season over the last 2 years. We have now seen in the most recent couple of weeks an acceleration If that holds, there is more growth to be had there.

Do not get too excited. I come back to where I started. 3% in the front half, hopefully a bit of acceleration in the back half, consistent share growth quarter over quarter.

Operator: Your next question will come from the line of Dara Mohsenian of Morgan Stanley. Please go ahead.

Dara Mohsenian: Hey, good morning. So Andre, you are expecting a pronounced level of commodity pressure this fiscal year at $1.4 billion and up another $104.1 billion versus last quarter. Unfortunately, that is also looking more sustainable than we hoped originally after the run up earlier this year. So just in light of how severe the commodity backdrop looks, how are you thinking about pricing as an offsetting lever to that cost pressure And the context of the question is, still seemingly difficult industry. Backdrop in theory with a weak developed market consumer, promotional competitive environment, even some retailer pushback. So just how do you weigh all those competing forces as you think about pricing in the remainder of the year?

And also the internal progress that you are making from a top line perspective that you just mentioned in response to Steve's question? Thanks.

Andre Schulten: Morning, Dara. Yeah. I think that is an important place to pause for a moment. Obviously, $1.4 billion, 8% headwind is significant. And again, if we see the most recent development, this might increase for the year. We will deal with this the same way we always do and I do feel that the team is well equipped to handle even the higher level of cost pressure. It will take 3 things. It will take record productivity levels, which we have identified the project list is complete and sufficient and it is being executed across every 1 of our businesses.

So I feel very good about a sustained record level of productivity output that will help us overcome a good portion of this cost pressure while we maintain investment in the business. The second component is pricing with innovation. And honestly, I think the momentum we are starting to generate gives us confidence to price with innovation, because we are getting the balance between pricing and product improvements, package improvements claims, communication and retail execution right, but it is also a very fragile balance that we want to make sure we do not compromise on. We will price we will price with innovation. Not jeopardizing the top line momentum. The third component here is time.

We will take the right amount of time to recover the dollar impact of the commodity hurt, and time will be largely driven by what we described in the second point, making sure we maintain the right balance of price product, package, communication and in store execution. We have worked the team has worked so hard over the last 9 months category by category, customer by customer, country by country, to improve this balance. So I think we are probably closer to this dynamic than we have been in a long time. I feel good about the plans that I see.

The last point I leave you with at this level of commodity pressure, not a projection, just a fact, the industry generally is pricing up. Because there is no way to recover this level of commodity pressure without pricing, that is fact of the past, it does not have to hold true for the future. So I can just only give you my perspective on the 3 elements we are going to work on.

Operator: Your next question will come from the line of Robert Ottenstein of Evercore ISI. Please go ahead.

Analyst: Great. And congratulations on the strong start. From everything we are seeing, clearly, a lot of The U. S. Categories are improving. You are regaining share. But as you know, it is a very dynamic environment. So I was wondering if you could talk a little bit about what you are seeing or expecting in terms of competitor reactions? And then also, how are you dealing with ongoing affordability issues? In terms of dealing with competitors as well as maintaining the market share momentum. Thank you.

Andre Schulten: Thanks for the question, Robert. I think the competitive environment has been fierce over the last few quarters And I think that has led us to make adjustments where we needed to make adjustments We have talked about our Baby Care business we needed to get value competitive with the new competitive reality. I think we have done that and I feel very good about being balanced. I think we got to a point where we reacted to be competitive on those hygiene factors, I would call them. And then add superiority terms of product performance, communication, better retail execution to drive category growth, and our growth within that.

So I still see the same formula playing out Growth going forward is not about taking share. Growth going forward is about growing our categories. And I am encouraged to see that in North America, the category is now approaching 3%. Value growth. In many places, innovation that we are launching with pricing is driving true category growth. You heard our examples in the prepared remarks on user growth, for example, in The Middle East, that topic of consistent user growth or penetration growth in our categories is relevant and being pushed around the world. So I view the competitive dynamic as unchanged. And, yes, intense.

I view our role within that as growing categories with innovation better offerings for consumer. Affordability within that is that careful balance that we were describing in every pricing decision. And I think also here, we are executing what we have designed for. We have a portfolio of brands that spans across different value tiers. And we have a portfolio of tech sizes and executions within each brand, that go from very affordable value offering to high pack size premium offerings depending on the cohort, depending on the channel. And I think we are continuously getting sharper in the execution My favorite example was the Charmin and Bounty Essentials execution.

When we came out of COVID, we de prioritized that part of the business simply because we did not have the capacity. And when we went into this period, we said we need to reignite user growth in that part of the value segment within family care. The team redesigned the proposition, adjusted the value, redesigned the packaging, and the proposition is working extremely well, growing significant users. At the same time, we are innovating at the higher end with the Charmin strong innovation on wider sheets, which is very intuitive, and very consumer relevant.

We will continue to do both, and I think we have made the investment over the last 9 months to get us into the right starting place and now it is pushing forward from here with the balanced portfolio execution and, again, carefully watching value equation at each part of our portfolio.

Operator: Your next question will come from the line of Bonnie Herzog of Goldman Sachs. Please go ahead.

Bonnie Herzog: All right. Thank you. Good morning, everyone. Question on baby care. You know, it is encouraging to see the sequential acceleration in growth this quarter. And then you highlighted North America and China as key drivers. So I guess against the backdrop of increased promo intensity in The U. S. And then destruction at 1 of your key competitors in China. What has been your strategy in baby care? And how sustainable do you think the recent improvements are? Thanks.

Andre Schulten: Thanks, Bonnie. Global baby care is up. Top line is growing 5%. Shares growing 80 bps. Baby Care in The U.S. is up 3% on sales, 7% on volume. And up both in volume share and value share. We have not yet addressed many parts of the portfolio. We have just launched the mid tier upgrade, will not be the last to get to superiority. We have not yet fixed our wipes business. And we have not yet launched the innovation that we want to launch on Swaddlers and some other parts of the premium portfolio.

We have fixed what I will call the hygiene factors, value versus close competition, and we are building on the trend that we see as the future growth engine for this category, which is less babies means more spending per baby. And that holds true in every part of the world, and it holds true in The US. It holds true in China. And when we launch truly superior propositions that feed into what the premium consumer is looking for, Superior dryness, softness, premium materials, safety, on the highest level, ingredient safety, we win. And that is why Andre is going to a $100 million brand in a few quarters.

And I think that would be the that would be the success model for the future. China has been doing this now for 8 quarters. The mid tier is effectively nonexistent in China anymore. And even when I take out the most recent competitive issue in China, the business would have consistently grown in high teens and low 20s. So I do believe that the model is very sustainable.

That the strategy of being superior and trading consumers up as we are doing on tape diapers, it is the same model we can apply on pants, the same model we can apply on wipes, and I do think that is a solid growth path for the business and I am excited about the innovation that is coming. And I think that does exactly that.

Operator: Your next question will come from Filippo Falorni of Citi. Please go ahead.

Filippo Falorni: Hi, good morning everyone. I wanted to ask about The U. S. Business. Andre, you mentioned 70% of top U.S. customers holding or growing share. that is a significant improvement as you called out versus last year. Where do you think it is coming mainly from? Like, and how much more do you have to realize in the balance of the year within your guidance? What are you assuming in terms of improvement in share? Then in terms of the gap relative to consumption, last year, you had a lot of volatility, a lot of quarters where shipments were below consumption. This quarter, it seems to have closed quite more.

How should we think about that gap from an inventory gross to net sales, levels as we think about the balance of the year? Thank you.

Andre Schulten: The answer to the first question is more. We are where we said we would be. We wanted to be at the end of the year, we want to be north of 80%. End of the calendar year that is. And I think we are the North American team is working towards that objective. The recipe does not change. Where we do not grow users, very quickly go into diagnosis mode. And we will very quickly in a combination of the customer the customer team on the P&G side, the category team, develop an action plan and we fund that action plan when it cannot be funded within the category commitments.

And that cycle time is only improving We are having these conversations. In a structural way. Every quarter, but we are having them ad hoc almost every week. So I feel good about the urgency. I feel very good about the clarity of being consumer led those conversations. Because the secret here is not to try to buy more share The secret here is to tailor the adjustments to superiority to the specific needs of that retailer shopper. Be it price points, be it claims, be it part of the portfolio that we present at the retailer. That will continue. Again, our objective that we stated before is 80% by the end of the calendar year.

Inventory dynamics you said it. The base period is gonna be the source of volatility here. As you know, we had a significant inventory shift in Q3 in the U.S. That will impact this Q3 as well. But we will have to see how the flow of promotion events, how the flow of innovation evolves. I feel confident in the semester guidance that we just gave you. 3% organic sales in the front, a little bit more in the back half. Quarter by quarter, this might shift a little bit because of those dynamics. But I feel confident in 3% and 3%+ front half back half.

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

Chris Carey: Hi. Thanks so much for the question. Andre, I just wanted to clarify that last statement, and then I have a follow-up. Just regarding the fiscal Q2 deceleration despite the easier compare We need to think about a roughly 1-point shift in Europe and then it sounds like you are just more broadly assessing strength of consumer as we get into the end of the calendar year given the higher inflation backdrop is at really the premise of just embedding that deceleration for now into fiscal Q2? And then, you know, just from a category perspective, I think this is the best fabric care top line growth we have seen in a few years.

Can you just give us a bit of context on category growth rates globally? And perhaps some of the market share dynamics that are underway most specifically in The US and Europe, given you know, some of the innovation and competitive activity you have seen in those regions?

Andre Schulten: Thanks, Chris. I think you answered your first part of the question. I think it is exactly that. Look. Gas prices are continuing to come up. Midterms and related outcomes in The Middle East are still a source significant volatility going into Q2. Base period dynamics, inventory shifts, So you put it all together, we do not wanna get ahead of ourselves. We think 3% is a healthy growth rate within this context, and we know there is volatility quarter over quarter. So we do. We wanna be realistic in assessing the strength and straight line of the underlying momentum. The strength is real. But it will not be a straight line.

Fabric Care specifically, you are right in The U.S. Fabric Care business is growing at 4%. So strong results. In Europe, we are growing 5%. And we are growing share in both regions. So North America, share. Value share is up 70 bps. Europe value share is up 60 bps over the rest 3 months. And all the 2 largest markets in Fabric Care fabric enhancers are growing, and the laundry part of the business is growing. So it is consistent across the portfolio.

And if you look at what is driving it, the innovation, I think the improvements we are making in delivering superiority EVO the tight liquid boosted innovation, We innovated on GAIN both on liquid and on unit dose. And that is driving growth. We have innovation on fabric enhancement. The Luxe edition, and that is driving growth. So I think, again, the return to a consumer centric assessment of superiority Are we growing users? If we are not growing users, what are the right interventions? Have led the Fabrica teams both in Europe and in North America to make the right calls I think those calls are playing out in growth.

And I feel good about the type of growth we are generating. Slightly ahead of market, but every 1 of these initiatives is growing the market. Given the premium of GAIN, the premium of Tide, the premium of EVO, it is actually expanding the category by delighting the consumer at each value tier more than anybody else.

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

Nik Modi: Yes. Thank you. Good morning, everyone. Andre, maybe you can just peel back the onion on China. there is been a lot of macro volatility, a lot of commentary that the macro backdrop remains poor. Think you made the same comments. But the business is doing really well. So I just wanted to kind of understand exactly what is going on. Is this a beauty specific thing? You know, any context would be helpful. Thank you.

Andre Schulten: Sure. Thanks for the question, Nick. Let me start by stepping back for a second. The China business has been strong for 6 consecutive quarters now. Why? Because the China team coming out of COVID I think, were the first ones to realize that the structures in the market have changed. From strong consumer demand to market decline. All parts of the business were shifting towards digital and social. And retailer interactions were very different and the traditional distributor system did not really work.

So they adjusted every part of that equation completely reinvented the distributor network, built a social first marketing machine, build an execution machine that could deal with the social selling channels, and online retailers and at the same time, strengthen brick and mortar execution and strengthen the innovation machine. All of that together, I think, has led to a well equipped team that is executing brilliantly, and that is been driving 6 consecutive quarters of sales growth and now delivering 8% in Q1 with 5% volume growth. In terms of categories, let me get the obvious 1 out of the way. Baby care, has been consistently growing at around 20%.

In Q1 now, it is growing almost 50%. that is obviously driven by the competitive issue that existed in the market, which is driving a ton of trial for Pampers. And I think the team is doing brilliantly in keeping up with the trial machine and then ensuring that we can retain those users over time. But, yes, we have benefited somewhat about 3 points. So if you take that out, China would still be growing at 5% that it has been growing so mid single digits. The rest of the portfolio is also doing well. SK-II growing 13%. Fabric up 5%, fem care up 9%, hair care is up, but we also still have significant opportunities.

So our Olay business in China, for example, is in the middle of reinvention. it is not growing. We need to get it back to growth. Similar to North America, those interventions are underway. So we are not firing on all cylinders yet. But we are very happy with the China structural progress And I have very high levels of confidence that we will fix the remainder of the portfolio and see even more sustained growth in China. In a difficult market because market growth is still below 1.00 in our channels and categories. And quite frankly, consumer sentiment is not improving So big congratulations to the China team for winning a tough environment.

Operator: Your next question will come from Peter Galbo of Bank of America. Please go ahead.

Peter Galbo: Hey, good morning. Thanks for the question. Andre, I know we have a lot on the call, but maybe just wanted to follow-up back on Dara's earlier question. Particularly around the cost environment, just given that you did raise the input cost outlook. I just wanted to assess, I mean, based on your commentary, clearly, we are tracking towards, I think, the higher end of organic sales range. Based on the outlook you provided. But just like what is your confidence level still in at least achieving the midpoint range on EPS just given the elevated cost environment? Seems like you were still relatively confident in it, but I just wanted to clarify that.

Andre Schulten: Thanks, Peter. Sorry, I do not want to evade your question, but the confidence I have is that we will be in the range. Where in the range? Hey, it is 1 quarter So give us a bit of time to solidify the top line momentum. Give us a bit of time to get our hands around the commodity impact, pricing plans, productivity, and that is why we are reiterating the range So I am confident in the range. But we will need time to figure out where that range will end up.

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

Peter Grom: Great. Thank you. Good morning, everyone. So I wanted to just ask a follow-up on the inflation. So Andre, you touched on the fact that it was a 5% headwind in 1Q, but expect it to be an 8% headwind for the year. Can you unpack how you see that phasing based on where things stand today? And then you mentioned the team is well equipped to handle this higher inflation. But as we think about productivity and pricing, are there any quarters where you would expect to see a greater gap between those offsets? Relative to the inflation, that could result in more outsized profit pressure. Thanks.

Andre Schulten: Yes. Thanks for the question, Peter. Let me carefully circle this 1. So the yes, quarter 1, obviously, COGS reflect a lower input cost. Right, with inventory holding and those effects, so that is why you see 5%. Q2 has been produced at $100 a barrel. So when I look at 8, reflecting $100 a barrel, my assumption if I were you would be that flows through in Q2. Oil at 113 means more is coming in Q3 and Q4. For Q3 and Q4, we have more time to react. For Q2, we have little. So I will leave it at that.

Operator: Your next question will come from the line of Andrea Teixeira of JPMorgan. Please go ahead.

Andrea Teixeira: Thank you, everyone. And Andre, you spoke about the pricing phasing and the costs So should we assume with the comment you just made now, that UV negotiating with retailers at some point given this outlook and given that you have been helping in a way with just 40 basis points of pricing realization. Is that something that we should be thinking as you progress the quarter? And then thinking about how you gave this guidance and reiterated this guidance, I am assuming in the guidance, you did not include the pricing that you alluded to that potentially be negotiated. So I would just want to double check on that.

And then in terms of the phasing of productivity, you had this 250-basis-point improvement in the operating margin. How should we be thinking of the phasing as we go through the balance of the year?

Andre Schulten: Hey, Andre. Look. I really will not be able to tell you more about future pricing, obviously. I cannot announce pricing, and I will not announce pricing in any way, shape or form. The only thing I will leave you with is we price with innovation. Innovation is generally timed with modular resets. So you kind of get the drift here. On productivity, we have delivered about $500 million, $550 million BT productivity in Q1. And we delivered €2.8 billion last year. So again, I think I would expect a similar run up in terms of productivity. Generally, we get heavier on productivity in the back half.

And I think you should expect the same I do not see that pattern changing.

Operator: Your next question will come from the line of Kevin Grundy of BNP Paribas. Please go ahead.

Kevin Grundy: Great. Good morning, everyone, and congrats on the strong results. Andre, can we zoom out, I guess, a bit and maybe just talk about industry growth which despite all the all the discussion about pressure on the consumer, it seems like the consumer is still fairly resilient, and the category growth really has not changed dramatically at this point. So maybe you can just sort of comment, take us around sort of key geographies and comment broadly on industry growth and just reaffirm my understanding that, really, in key geographies, relatively little change relative to your fiscal 4 q out. Fiscal 4 results, excuse me, just a few months ago. So thank you for that.

Andre Schulten: Thanks, Kevin. You are right. In aggregate, the consumer is resilient. We see 2% to 3%, 2.5% to 3% value growth across all categories globally. That is unchanged maybe a little bit better than what we saw and reported last quarter. We see improvements in The U. S. So we talked about 2% last quarter. We are running up to 3% now. In terms of value growth. We would like to think that we are part of that acceleration as we launch innovation and we drive growth in our more premium lineup. We see enterprise markets continuing to grow strongly in the 4% to 6% range. Maybe accelerating to 6% to 7% in the most recent reading.

So those consumers are holding up well. And Europe continues to be stable, but muted at about 1%. So you put it all together, there is a little bit of positivity here, 1 in The US, upwards to 3%, and I think enterprise markets represent a huge opportunity for us and that is why we are talking about user growth in progress we are making on user growth in The Middle East. Our user growth in India is actually fantastic. So we are we are really encouraged about both the market conditions, but also our ability to drive further market expansion and consumer development penetration here in those regions.

Operator: Your next question will come from the line of Kaumil Gajrawala of Jefferies. Please go ahead.

Analyst: Hey, Andre. Hey, everybody. I am still struggling, I guess, to reconcile your commentary versus your guidance. It sounds like interventions are working. It sounds like shares are moving in the right direction. It sounds like accelerations across a bunch of these, and your comparison, I think, in every division with the exception of health care gets easier not harder and so other than. You had mentioned macro and that sort of thing. Are there any real business reasons to expect such a deceleration into the second quarter versus the first quarter? Given everything that you have said about how the initiatives are working across the different divisions?

Andre Schulten: The consumer is the key variable here. Look, we are looking at fuel prices, gas prices around the world. That are creating turmoil. You look at France, You look at the conversation in The US. So there is clearly pressure on the consumer in short term. And so far, the consumer has held up. We do not know if that is gonna continue. there is a bull case to be made. there is a bear case to be made here. So we wanna be straight in the middle. that is why we come back to 3%. There are some pre shipment to merge events, specifically in Europe that I mentioned, that is part of the balance between Q1 and Q2.

And all we want to avoid is you getting ahead of yourself in terms of straight line projection. Yes. I think we feel very good about the elements we control. We feel very good about the progress we are making in our brands. And if the consumer holds up and there is no other disruptions, could we see improvement on the top line? Yes. We could. But there is too many moving pieces right now. To confidently tell you that is gonna happen in Q2.

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

Olivia Tong: Hey. Thank you. Good morning. Andre, clearly a nice start to the year. So just building on some of your earlier comments, can you talk about how you expect demand to evolve on a category level from here? And how much of that second half accelerate. Potential acceleration you are planning for is based on category improvement versus your own initiatives? And I realize that is obviously very much related, but we talked about some of the interventions in tissue towel, earlier. What about other categories and your thoughts on what you have learned from the interventions you have already done and the competitive response to that and how that might influence the next phase of execution?

Thanks for the extra decimal on revenue growth. Appreciate that.

Andre Schulten: Thanks, Olivia. Look, I will I will stay high level here. Category wise, we continue to expect 2.5% to 3% value growth in our categories We will make progress on those categories where we are not yet fully recovered And clearly, objective is to get to share growth on every 1 of our global categories. We clearly expect Family Care to return to share growth in the second half. We are working hard to accelerate beauty even further. And we hope for a great cold cough season, if I can say it that way, So those are the 3 most acceleration prone categories in the in the back half. On the rest of them, I think steady as she goes.

Baby care has to retain the trial we are generating in China. And making progress with innovation in the second half. I feel good about that. Same for Femcare. And we have a very robust plan on Fabric Care to maintain. And I can only repeat 1 more time, it will not be a straight line. Competitive environment was mentioned. that is very valid. Consumer volatility, very valid. Supply chain disruption costs, pricing, very valid. So the things we control are all in control. There are many things that impact our short term results that we do not fully control. that is why we maintain the range.

Operator: Your next question will come from the line of Robert Moskow of TD Securities. Please go ahead.

Robert Moskow: Hi. Andre, you have talked about, the strategy and the rationale for buying Thorn. A couple of months ago. But I wanted to clarify a little bit more Thorn has some aggressive growth objectives over the next couple of years. To what extent does Procter help enable that I think the plan is to have it run separate from Proctor's operations And then in addition to that, what are you doing to make sure you retain the people who, made Thorn so successful over the last couple of years? Thanks.

Andre Schulten: Thank you, Robert. I will only give you the headlines. I think this would be a perfect conversation to have with Paul at our Investor Day. And he is certainly more equipped to talk about it than I am. But at the core, job number 1 is to retain what made Thorne a successful brand. Within the BMS space. And Paul is 100% focused on that. The people who built this business are fantastic. And fantastically equipped to continue to do so. And we certainly have every intent to retain their knowledge and their capabilities. Where do we add I think we can add in international expansion.

Because this brand and the benefit space is relevant not only in The US, but way beyond The US. And Ford has proven that by shipping and launching in parts of the world We can help by scaling Thorn 1 once ready across different categories, the time is not now, The time is later. And I think we can help where needed by the team in terms of capabilities. Supply chain capabilities, ingredient qualification, and marketing scale, and marketing support. Think the principle Paul will bring you towards is we let the Thorn team lead us. So this is not P&G integrating Thorn.

This is Thorn leveraging P&G to maintain what is at its core, and leverage where we can complement.

Operator: Your next question will come from the line of Edward Lewis of Rothschild. And Co. Redburn. Please go ahead.

Edward Lewis: Thanks very much. Yes, just 1 for me, Andre. Just wondering that you made quite a few changes in terms of the international or, I think, more developing market category country combinations over the past 12 months. You are clearly sounding more positive about the outlook in those markets relative in your commentary just now. Just wondering how much have they helped the changes you made, how much they helped that international performance and your international outlook?

Andre Schulten: Thanks, Edward. I think it is still early. I would not attribute I would not attribute the majority of the progress in enterprise markets to the change that only went into effect July 1. But I do attribute a lot to the intentionality that Shailesh and others and our sector CEOs put on growth in those enterprise markets. Putting India into a separate cluster from the rest of the Asia, Middle East, Africa region, increases intentionality to grow Combining Turkey into that cluster helps And I think we will see even more potential as we focus on user growth in each of those clusters. The second component clearly is Europe today is basically 1 big focus market.

The retailer structures are similar. The go to market and consumer structures are similar. So simplifying the go to market approach in Europe was another key component here. Honestly, what gives me confidence is the leaders we have in each of those businesses. The commitment of the sector CEOs, and quite frankly, the fact that even with the restructuring impact that we are seeing in the current quarter, we are seeing mid single digit growth, which you take the restructuring out, would be even higher. So I think we are on the trajectory here.

Operator: Your final question will come from the line of Michael Lavery of Piper Sandler. Please go ahead.

Michael Lavery: Thank you. Good morning. Just 1 follow-up to your answer to, I think it was Peter's question about how, just the second half, you would have more time to react to higher oil prices You are obviously pushing restructuring and savings or, you know, productivity and savings already quite aggressively You have been clear how you price with innovation. I guess maybe could you just elaborate a little bit on what levers you would focus on and push harder to offer some mitigation? And maybe what expectations for mitigation might be baked into to your outlook as well?

Andre Schulten: Everything we know is baked into the Outlook. Again, there is always a balance between commodity input costs and how hard you want to drive productivity within the year. there is always a way to pull forward things. Or to push out depending on whether it is needed or not needed. there is always time to adjust pricing with innovation. there is ability to pull forward innovation. Or push it out, So those are the components that we will manage Again, all of the gives and takes are the reason we have the range. So. But more time basically allows us to shift productivity shift pricing and innovation, that is really the flexibility that we have in the second half.

And as you can imagine, within the current quarter, that flexibility is limited on those levers. Okay. I wanna thank you for your time. Again, we had a reasonably good start to the year. We are excited about the progress the teams are making around the world, which is consistent and grounded in the interventions that we wanted to make. They are showing signs of holding, sticking and delivering results. it is gonna be a volatile ride so I just wanna bring us all back to reality. 1 quarter makes no upper end of the guidance range for the year. We still have a lot of work to do. But we are excited about where we are.

We want to remind you quickly that Investor Day is on November 19. Shailesh and the broad executive team will be there and we can go much deeper into the long term transformation that is happening at P&G to build what we call the CPG company of the future. We hope to see you there welcome you at our global headquarters next month. Thank you for your time.

Operator: That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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