Procter & Gamble Co Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve Powers - Deutsche Bank - Analyst : Thanks, and good morning, Andre. How are you? I guess to start, I think as we reflect on the quarter and really the last 12 months, I think it's fair to say you've been kind of continually surprised to the downside on the trajectory of growth. And obviously, markets like China and the Middle East have caused persistent challenges. The good news, as you suggested, is that we're going to start to lap those challenges. But rates of improvement are questionable, as you highlighted. And I think investors are somewhat fearful of -- that alongside that benefit of cycling the challenges, you'll start to have some more deceleration in markets where we had strength. The US and Europe focus markets are probably most pertinent. I guess, how do you assess those challenges? You called out the consistent outlook of market growth of 3% to 4%. That's relatively bullish on the dynamics I'm referencing. So what do you say to investors who are more concerned about deceleration from here in that underlying growth?

Question: Lauren Lieberman - Barclays - Analyst : Great, thanks so much. So just to follow on Steve's thought process there, Andre, your response. We've heard more -- early days in earnings season. But there are a number of multinational companies that are calling out worsening trends. So European consumer was particularly called out yesterday by Nestle; Latin America, a bit less good. And then of course China, I have to assume that that down 15 was a surprise to you guys this quarter. So just, what about the, I guess, risk factor around your point on that 85%? Because it doesn't feel like it leaves a lot of room for any kind of flowing in the macro environment, which just feels a little bit contrary to what we're hearing from some other consumer companies. Thanks.

Question: Dara Mohsenian - Morgan Stanley & Co. LLC - Analyst : Hey, good morning.

Question: Dara Mohsenian - Morgan Stanley & Co. LLC - Analyst : So just to follow up on this 85% of sales mix versus 15% dynamic. First, maybe on the 85%, obviously, the US is the lion's share of that. Can you just touch on what you think sustained category growth is here in the US in a moderate pricing environment from an industry perspective, as you look out over the next couple of years here? And I guess, you sound pretty confident in the market share momentum in the US. But maybe you can touch on that in a bit more detail. And then just on the laggard 15%, it's helpful -- the detail you gave us in terms of what a sequential improvement could mean or not mean going forward to corporate OSG. Just give us a little more sense of your perspective. The comps are much easier. Is the base case that there should be an inflection in that 15% going forward, with easier comps? I understand some of the volatility you mentioned. But just trying to get a sense of how you see that developing on the 15% of mix as you look out over the next few quarters here. Thanks.

Question: Bryan Spillane - BofA Global Research - Analyst : Hey, thanks, operator. Good morning, Andre. Good morning, John. My question is just around the gross margins and the cost of goods sold inflation. And this morning the inflation came moderated a bit. So I guess, two questions. One, was any of that moderation of inflation present in the quarter? So did it affect at all gross margins in this quarter? And then as we're thinking about it going forward, as we're thinking about our models, is there anything that would offset it actually improving gross margins a little bit more? So whether it's segment mix or geographic mix, just -- how should we think about how that improvement sort of nets out in our model? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 12:30PM, PG.N - Q1 2025 Procter & Gamble Co Earnings Call

Question: Chris Carey - Wells Fargo Securities, LLC - Analyst : Hi, good morning, Andre. I wanted to ask specific questions about the baby business and also the family care business. This is a few quarters in a row that baby is under pressure. Can you just talk about the durability of this pressure, maybe how much of that has to do with geographic splits between China and the US and what really the path is to see improvement from here, even if the birth rate dynamic is not in your favor? And secondly, on the family care business, I think this is something like -- I don't know -- 11 consecutive quarters of growth. But pricing will become less of a tailwind. I don't think there was any real pricing in the quarter. Can you just talk about the sustainability of these growth rates in the family care business? And also, if you could just maybe touch on whether you saw any benefit in this quarter from stock-up activity with some of the port congestion and storms, and whether we should be thinking about that maybe next quarter or just in general, if that's something that we should be considering as we think about the next quarter to -- going forward in that business, so based on baby and family care.

Question: Filippo Falorni - Citi Investment Research - Analyst : Hey, good morning, everyone. So, Andre, I wanted to go back to China and your comments about still being a few quarters until you return to growth. Look, you're starting to annualize some of the impacts on SK-II already in the next quarter. So should we think about the pace of improvement in China in the sense of less declines, but still negative growth in the balance of the year? And how does the recent stimulus measure in China inform your gradual improvement in the country? And then if I can ask one more, the total company level, I think it would be helpful to give a little bit of context how you see the progression in terms of organic sales growth from approximately 2% in Q1. Should we expect a sequential improvement in Q2, or is it really the improvement to get to your midpoint of your guidance more skewed to the second half? Thank you.

Question: Robert Ottenstein - Evercore ISI - Analyst : Great. Well, you guys have done a fantastic job, obviously, in the US and Europe. So I want to circle back to China on a more bigger picture basis. By my estimates, it looks like your sales are now down 20% to 25% over three years, so three years of consecutive declines. And so the question is, are there structural changes in the Chinese market or the Chinese consumer that need to be addressed and what you're doing to address those changes? And I think you also mentioned in terms of SK-II that you're starting to push that brand a little bit more now. So are you starting to see some green shoots with the consumer and the appreciation of that brand and the ability to get that going? Again, thank you.

Question: Kevin Grundy - BNP Paribas Exane - Analyst : Great. Thanks. Good morning, Andre. I wanted to pivot. So with respect to areas that you can control, I want to ask about market share performance. And if I'm not mistaken, I think the comment was, earlier on the call, you're gaining or holding share in 28 of your top 50 markets, so a bit more than half. Also, if I'm not mistaken, that's down from 75% in fiscal '22. I believe the company's longer-term target is closer to 65%. And this is also within the context, you reiterated the 3% to 4% sort of global category growth. And the company printed 2% organic sales in a quarter, understanding some of the dynamics here in the base and 15% of the business seeing more acute headwinds. So with all of that in sort of context, I was hoping you could comment on sort of longer term, the importance of market share as a KPI within the organization; and then two, and I think maybe more immediately, what you see is the greatest areas of opportunity to elevate the company's market share performance. Thanks for that.

Question: Peter Grom - UBS - Analyst : Thanks, operator. Good morning, everyone. I guess, Andre, I wanted to ask a follow-up to Steve and Filippo's question. And I don't want to be too specific. But when you're kind of discussing the rate of improvement or annualizing the impacts from China and the Middle East and kind of the organic revenue range, are you speaking to where it would put organic revenue growth for the year? Or are you kind of just speaking conceptually how you would see it evolving for the balance of the year? And I guess, the reason I ask is it seems that in order to hit the midpoint of the range, you would need some pretty strong performance from here after the 2% in 1Q. So I just wasn't sure if you were implying that based on where things stand today, simply annualizing these headwinds would still be enough to hit 4% for the year. Thanks.

Question: Andrea Teixeira - JPMorgan - Analyst : Thank you, operator, and good morning to all. Andre, can you comment a little bit on what Peter was trying to get to? And I think it's valid in the sense that your skincare performance, right, it was like, I believe, more than 20% negative in total. And then you're annualizing, if I'm doing the math correctly, that on itself is 700- to 800-basis-point [sequential] easiness in guide -- no, in comp. So with that to say, that needs to be slightly better. So let's say that the minus 22, call it, becoming [meetings] negative, on itself, helps your comp. And then on top of that, you're saying kind of stability. But in terms of stability, what gives you confidence that Europe and the US can keep that stability, or even Latin America can keep that 85% running, all things that we know now for the second quarter? So it implies -- I mean, I'm all to say that it does imply -- if you're keeping guidance at the midpoint, it does imply that you're going to be sequentially better in the second-quarter fiscal, is that's the way we should be thinking.

Question: Kaumil Gajrawala - Jefferies - Analyst : Hi, thank you. Good morning, everyone. Can you talk a bit about price points and promo? And in particular, I guess, I see that mix was negative for both beauty and grooming. Beauty, I guess, I would assume is SK-II. But maybe just talking about where the consumer is, are you seeing trading down, how you're thinking about that in the context of promotional activity and absolute price points. And then very quickly, anything on inventory, destocking? We're just hearing more and more of that at retailers. Curious if that's something that's impacting you or something that you're watching.

Question: Mark Astrachan - Stifel Nicolaus and Company, Incorporated - Analyst : Yeah, thanks. Morning, everybody. I wanted to ask specifically on SK-II. It seems like the trends in the brand are just a little bit worse than the overall prestige skincare category. I guess, I'm curious about how you think about the brand. You talked before, maybe not last quarter, work that you had done about brand relevance, awareness, and intent to purchase and improving. And clearly, it's not. I get some of that's the weaker consumer in China. But at some point, does it become a question of brand impairment and kind of need to reinvest and reinvent the brand to broaden or regain relevance? So I guess, the question is, how do you think about all of what I just said in the context of just the underperformance versus the category seems to be widening? And what's a reasonable rate of a timeframe for it to return to some sort of improving trend, not even growth? I know what you said about China. But the (inaudible) specifically within that market would be helpful. Thank you.

Question: Nik Modi - RBC Capital Markets - Analyst : Yes, thank you. Good morning, everyone. Andre, just a quick housekeeping and then a broader question. You mentioned in your prepared commentary that you're not embedding any store closures into the guide. I think that's what I heard. And just given what's going on in the drug channel, just wanted to get your perspective on -- have you accounted for some of the dynamics playing out in that market? So that's the housekeeping question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 18, 2024 / 12:30PM, PG.N - Q1 2025 Procter & Gamble Co Earnings Call The broader question is just about innovation. And I think P&G is kind of anomalous in the fact that there's real disruptive innovation coming out of the company more so than I think the broader sector. And so maybe you can just give us an update on Olay Melts and Tide Evo and kind of how that initiative is progressing. And within the pipeline over the next one to three years, what other type of -- of course, you're not going to mention the specifics -- but just like similar type of disruptive type of innovation. But is there anything else that you can kind of share with us regarding other types of initiative like you have with Tide Evo and Olay Melts? Thanks.

Question: Olivia Tong - Raymond James - Analyst : Thanks. I want to talk about -- there's clearly a big divergence in performance across categories, and realize that some, like beauty, have higher exposure to some underperforming markets. But if we look at like fabric and home care, the example you just gave, for instance, can you talk a little bit about what you're doing differently there versus your other categories? Because it feels like in fabric and home, you're innovating more; the innovation is resonating better. Why doesn't it seem to be working in some other categories, baby for example, or beauty, excluding SK-II for the moment? Because it doesn't seem like competition is any lighter in these categories; if anything, it's just as heavy. Thanks.

Question: Korinne Wolfmeyer - Piper Sandler & Co. - Analyst : Hey, good morning. Thanks for taking the question. I'd like to, hopefully, get a little bit more color on what you're seeing with your retailer partners. How are inventory orders tracking? Has there been any change throughout the quarter, and how are you expecting those orders to trend over the next several quarters? And then just generally speaking, how is that -- how are you viewing the broader retail dynamic, both in the US and then in Europe and in LatAm, and how are those differing? Thank you.

Question: Rob Moskow - TD Cowen - Analyst : Hi, thanks for the question. Andre, regarding the $300 million positive benefit in terms of your outlook for commodity costs, could you tell me, like, how you think about that versus your original guide? Like, do you intend to, like, hold it back and maybe deploy it in categories where you kind of need to compete more effectively because of price competition? Or can you think you have more proactive plans with that money to put it into areas of growth? How are you thinking about that benefit?

Question: Linda Bolton Weiser - D.A. Davidson & Company - Analyst : Yes, hi. I just wanted to ask a little bit more about the beauty segment. I was curious about Olay in North America and what's being done there in terms of the competition, the derm-based brands, the competition there. And then on China, again, we're all talking about SK-II, but how was the hair care piece in China? Was that decline less? And how is P&G doing, and what are you doing there on the hair care side in China? Thanks.