Procter & Gamble Co Q2 2025 Earnings Call Transcript

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

Question: Dara Mohsenian - Morgan Stanley & Co. LLC - Analyst : I just wanted to drill down a bit more short term into organic sales growth for the back half of the year, given some of the volatility over the last year. You've talked historically about the OSG split between the robust 85% in country mix versus a lagging 15% the last few quarters. Can you just give us a bit of update on the performance in fiscal Q2 in each of those buckets? Do you think you're on track for continued improvement in the 15% in the back half of the year as you look versus Q2 and also just sustainability of growth in 95%, that's stronger, presumably driven by the US and Europe?

Question: Lauren Lieberman - Barclays - Analyst : So Andre, I think you were kind of running through projected performance for P&G's business. But I was hoping you could also comment on what you're seeing in terms of consumer behavior and dynamics. I think in December, you guys have flagged a little bit of a softening in the consumer environment in the U.S. as a maybe it's something that sticks, maybe it doesn't. But would just love to get a read on that. And same in Europe, sort of the consumer dynamic, not just your own performance and market share trajectory.

Question: Steve Powers - Deutsche Bank - Analyst : I guess, Andre, I'm a little surprised that your currency outlook as it relates to the impacts on the top line didn't move off the negative 1% call you had in place as of October, even as the after-tax profit impact stepped up by the $300 million. So maybe you could just talk about any key moving parts there and whether you've assumed further currency movements or if the full year now could have effectively assumed spot rates as we've seen in the last few weeks. And then relatedly, I guess, I'd love a little bit more discussion of the productivity and pricing levers you have available to you as an offset to those dynamics and whether you see any limitations to implementing them over the balance of the year. I'm asking that in the context that historically, 3Q, 4Q gross margins stepped down sequentially. So I think your guidance has seen some fairly strong operating leverage over the balance of the year in SG&A, but just wanted to see if you could clarify those moving parts.

Question: Bryan Spillane - BofA - Analyst : So just a question or maybe two on China. One, just the 3% in the quarter, just how did Chinese New Year's impact that? So I guess, is that kind of reflective of consumption? Or is there any timing shift shipment versus consumption? And then maybe just more broadly, Jon, the market is changing. And does it create opportunities? Are you looking now to kind of use your position as a position of strength and expand in China while the market is soft? Just curious if the change in the marketplace at all has changed the way you're thinking about the market strategically.

Question: Peter Grom - UBS - Analyst : I wanted to get just some perspective on the input cost environment. I recognize you maintained your outlook for the $200 million after-tax headwind, but we've seen some volatility across some of your key raw materials over the past few months. So Andre, can you maybe just give us or unpack what you're seeing or expecting across your key cost buckets? And then just kind of looking at the first half impact on the full year guidance, you kind of alluded to this in Steve's question. Are you anticipating input cost deflation in the back half of the year when we think about our gross margin bridge?

Question: Andrea Teixeira - JPMorgan - Analyst : If we step back from the tone on the first quarter and then now the second quarter fiscal in regards to the range of guidance for both organic and EPS growth, is it fair to say you're feeling a bit better about getting to the midpoint on the top line, but EPS more pressured, given the increased headwinds in FX? I just want to understand how it changed. And then if so, if any changes, it seems like your productivity is coming in or even your operating leverage is coming in better than anticipated or better than feared, if you will? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call And related to that, just a clarification about the disruptions you called out in December in one of your suppliers. I've been getting questions regarding there is anything in terms of sell-in, sell-out. I understand there wasn't anything material in the quarter, either like catching up to that or anything that we should be aware of into the fiscal third quarter.

Question: Robert Ottenstein - Evercore ISI - Analyst : Great. Thank you very much. Just, first a clarification on China and -- if I missed it, but I know that you're doing better, your brands are doing better. SK-IIs is doing better, but just wanted to get any commentary on the Chinese consumer, -- the health of the Chinese consumer as the quarter developed and then into January. So just to follow up on that, and then my main question is on innovation this year, you sound more upbeat positive on this and excited in terms of what you're bringing out in calendar 2025. Is there any way to quantify that versus prior years, any way to think whether it's incremental shelf space or, the expected impact of the business on the top and bottom line, so that we can kind of try to model that? Thank you.

Question: Bonnie Herzog - Goldman Sachs - Analyst : Thank you. Good morning. I guess thinking about your guidance this year, if your organic sales come in at the lower end as you kind of touched on it, trends to cerate further and thinking about gross margin tail wins, likely moderating this year. Curious how much flexibility you have to deliver on your EPS guidance range. And then in the context of that, do you see a potential that you might need to lower your reinvestment levels to deliver on your bottom line guidance? Any color on, just how to think about your ability to continue to reinvest in your business. Thank you.

Question: Filippo Falorni - Citi Investment Research - Analyst : Hi, good morning, everyone. I wanted to ask a little bit more call on the enterprise market, business. You talked about Europe enterprise market still growing solidly. Maybe, can you give a little more call on Latin America. How the consumer general health there in key countries like Brazil and Mexico. And then on the Middle East, you're starting to cycle is comps, is your expectation of a return to growth in the second half of '25? Thank you.

Question: Chris Carey - Wells Fargo Securities, LLC - Analyst : I'd like to ask a few category specific questions. I'll count this as one single category question, if you'll allow. In the Family Care business, the double-digit growth you saw, would you attribute most of that to timing with some sort of reversal expected in the next quarter? In Oral Care business, it's the second quarter consecutive of low single digit, which is a bit below trend than what we've seen over the prior one-year period. And then just in the Baby business, you did highlight that you'll be making some merchandising investments. Jon spent some time on the resilience and longer-term history of pricing at P&G as a contributor to organic sales. Clearly, this is one of those categories that has been a bit more challenged over time, and you're leaning in a bit more on investments. Can you expand on that a bit more? What drives those sorts of decisions? And why now? So just those three kinds of category questions. And any kind of timing dynamics, specifically with Family Care that we should be thinking about going into next quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call

Question: Olivia Tong - Raymond James - Analyst : -- A two-parter here. First on China, you mentioned you expect continued normalization. So how much of this is category growth versus your market share improvements as you cycle estimating comps? And I ask that because comps aren't particularly demanding in second half, of course, but they do get a little less easy than the minus 15 that you're comping this quarter. And then just if you could talk briefly about the level of investment necessary to achieve your broader goals, not specific to China, but more broadly. Does it have to go higher? Or can you leverage many of the brand support investments that you talked about in answer to a different question that you've already made? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call

Question: Kevin Grundy - BNP Paribas Exane - Analyst : I'd like to pivot to capital allocation, two-part question. One, just updated thoughts on appropriateness of M&A as a potential avenue to drive shareholder value and what looks like it's going to be a slower growth environment here. And then two, with respect to buyback, consumer staples stock, including Procter's, have underperformed the market. Valuations are below historical averages versus the S&P 500. In that sort of context, has there been any school of thought internally to accelerate the pace of share repurchases as an avenue to drive shareholder value? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call

Question: Mark Astrachan - Stifel Nicolaus and Company, Incorporated - Analyst : Two quick ones. Just remind us on the approach to offset FX pressures were pronounced in places like LatAm, where the dollar has strengthened via pricing. And then just returning to SK-II. It seems a little bit like the performance was a little bit better than anticipated at Investor Day, where I think Alex has highlighted Mainland China improvement would suggest, obviously, China a little bit weaker at the time, but your commentary would suggest otherwise. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call I guess, is it part of the improvement that the Chinese consumer perception of the brand, the geopolitics angle, that improved? Is it category improvement? Is it both? Just any color there would be helpful.

Question: Kaumil Gajrawala - Jefferies - Analyst : I know to Chris' question, you answered for a few different categories. But if we can maybe dig in a little bit more on consumer health or Health Care. It's -- the comp was a bit easier. It slowed down a little bit. If just anything in there that we should be aware about, interesting to know.

Question: Edward Lewis Lewis - Redburn Atlantic - Analyst : Yeah. I just wanted to, I guess, look at the components of the focus on superiority plan, particularly on the consumer value side. So I look at this quarter, it's another quarter of -- it's flat pricing. But if I look back over, say, the last three years, on average, pricing is still up around 4%. And you're clearly getting positive volumes. So I wonder if you just talk to sort of what the consumer value side of the focus on superiority is telling you and whether we should then -- whether you should have confidence about possibly being able to take more pricing sort of -- in subsequent quarters or years with the evidence you're seeing from the data you're getting from the focus on superiority plan.

Question: Linda Bolton Weiser - D.A. Davidson & Company - Analyst : You've talked quite a bit about Beauty in China. And certainly, the SK-II improvement is contributing to that Beauty improvement we saw in the quarter. But I was curious about the US side of it and whether what you're doing in Olay in the US, like focusing more on Regenerist as a core grower, if that's paying any benefits in terms of market share changes. And also just on Beauty overall. I was a little curious why volume was actually down 1% for the whole segment for you, where volume had been sort of flat to up in the previous quarters.

Question: Rob Moskow - TD Cowen - Analyst : Yes. My -- . I wanted to ask about pricing in a different way. This is the first quarter where pricing has been flat in many quarters. And is there any scenario you could imagine where pricing turns negative? Or is there just the line in the sand here where that just won't happen? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2025 / 1:30PM, PG.N - Q2 2025 Procter & Gamble Co Earnings Call And then secondly, on mix, mix is positive, and I want to know what's driving that. Is it geographic? Can we assume that if Europe and US continue to outperform, will that be positive to your mix? Or is there something within the categories that's driving instead?

Question: Korinne Wolfmeyer - Piper Sandler & Co. - Analyst : I just want to touch a little bit on how you're feeling about -- or how your conversations with some of your retail partners have been going really across the globe. What are the confidence levels you're feeling with them? Are they still being cautious of inventory orders? Is that more normalized? And then how are you thinking about that heading into the back half of the fiscal year?