Earnings
P&G grows organic sales 4% on volume and holds its outlook, as commodity costs cut gross margin 160 basis points
Procter & Gamble's fiscal first quarter was driven by volume rather than price, while the company kept its profit guidance and flagged a $1.4 billion after-tax commodity headwind for the year.
HedgeWeekly News Desk ·
Procter & Gamble said on Thursday that net sales rose 4% to $23.3 billion in its fiscal first quarter, which ended Sept. 30, with organic sales also up 4%. Volume added 2.4 percentage points, mix 1.1 points and pricing only 0.4 points, while currency had no net effect. Core earnings per share edged up 1% to $2.00, and were flat at $1.99 on a currency-neutral basis.
All five reporting segments grew organically. Beauty led at 5.4%, ahead of Fabric & Home Care at 4.8% and Grooming at 4.5%, while Baby, Feminine & Family Care rose 3.0% and Health Care 2.7%. Profitability moved the other way: gross margin fell 160 basis points to 49.8%, with commodity costs alone accounting for 140 basis points, partly offset by a 50 basis point benefit from tariffs as costs eased and recoveries were booked. Operating margin slipped 70 basis points to 25.5%.
P&G kept its fiscal 2027 targets for organic sales growth of 1% to 3% and core EPS of $6.89 to $7.11, and set all-in sales growth at 2% to 4% to reflect the Thorne acquisition, completed on Oct. 1. The quarter produced $4.4 billion of free cash flow, and the company returned $3.9 billion to shareholders, $2.6 billion through dividends and $1.3 billion through buybacks. It still plans more than $10 billion of dividends and about $5 billion of repurchases this fiscal year.
Why it matters: P&G's growth this quarter came from selling more units, not from raising prices, at a time when it expects higher raw material, energy and transport costs to weigh about $1.4 billion after tax on fiscal 2027. Adding higher net interest expense, lower non-operating income and currency, the company puts its total headwinds at $0.79 a share, an 11-point drag on core EPS growth. With core EPS guided only from flat to up 3%, the gap between volume-led sales gains and a commodity-squeezed gross margin is the main thing for staples investors to track in the coming quarters.