Procter & Gamble Company (PG) — Q1 2025 Earnings Call Transcript

Good morning, everyone. Joining me on the call today is John Chevalier, Senior Vice President, Investor Relations. Execution of our integrated strategy delivered another quarter of solid earnings and cash results. These results enable us to maintain our guidance ranges for fiscal year '25. Organic sales grew 2% comparing against a strong base period of 7% growth. Volume contributed 1 point to organic sales growth, pricing added 1 point and mix was roughly in line with the prior year. Eight of 10 product categories grew or held organic sales for the quarter. Family care, home care and personal healthcare each grew mid-single digits. Hair care, oral care, feminine care, fabric care and grooming grew low singles. Baby care and skin and personal care were down mid-singles. Organic sales in focus markets grew 2% and enterprise markets were up 1%. Organic sales in North America grew 4%, driven by 4 points of volume growth. Over the last five quarters, North America has grown organic sales 7%, 5%, 3%, 4% and now again 4% on volume growth between 3% and 4% each of those quarters. The region delivered broad-based market share growth this quarter with eight of 10 categories holding or growing volume share and nine of 10 categories holding or growing value share. Europe focus markets organic sales were up 3%. This compares against 15% organic sales growth in the base period and includes a 2-point headwind from lower inventory versus the base period. Volume was up 4 points, despite the base period inventory impacts. Over the last five quarters, Europe focus markets have grown organic sales an average of nearly 7% on volume growth of 3%. Latin America organic sales were up low single digits against a strong 19% base period comp. Brazil grew mid-singles and Mexico was in line with the prior year, each of these markets comparing against strong 14% growth in the base period. European enterprise markets grew mid-singles, driven by pricing to offset inflation and currency devaluation impacts in addition to modest volume growth. Greater China organic sales declined 15%. Underlying market conditions weakened further during the quarter and we continue to face brand-specific headwinds on SK-II. We will begin to annualize some of the steep market declines and SK-II headwinds late in December, though it will likely be a few more quarters until we return to growth in China. Market conditions in the Asia-Pacific, Middle-East, Africa region have remained soft with organic sales down low singles. Global aggregate value share grew 10 basis points with 28 of our Top 50 category country combinations holding or growing share for the quarter. On the bottom line, core earnings per share were $1.93, up 5% versus the prior year. On a currency-neutral basis, core EPS increased 4%. Core gross margin was in line with the prior year and core operating margin increased 30 basis points, strong productivity improvement of 230 basis points. Currency-neutral core operating margin decreased 10 basis points. Adjusted free cash flow productivity was 82%, consistent with our expectations. We returned nearly $4.4 billion of cash to shareholders this quarter, over $2.4 billion in dividends and over $1.9 billion in share repurchases. To summarize results, solid top line growth across roughly 85% of the business, keeping us on track for the fiscal year. Continued volume and value share gains in North America and improving share trends in Europe focus markets. Earnings and cash results in line with our expectations, also on track with fiscal year guidance. Overall, good performance in what continues to be a challenging economic and geopolitical environment. We will continue to push all levers in our control to offset the headwinds that are largely not in our control. We remain committed to the integrated strategy that has enabled strong results over the past six years and that is the foundation for balanced growth and value creation. We've made portfolio choices across markets and brands to strengthen our ability to generate US dollar-based returns. We are doubling down on superiority across all five vectors and we are improving productivity in all areas of the operation to fuel investments in superiority, mitigate cost and currency headwinds and drive margin expansion. We are driving constructive disruption of ourselves and our industry, a willingness to change, adapt and create new trends, technologies and capabilities that will shape the future of our industry and extend our competitive advantage. We are benefiting from an organization that is empowered, agile and accountable. Our strategic choices on portfolio, superiority, productivity, constructive disruption and organization reinforce and build on each other and we remain confident in our strategy and in our ability to drive market growth and to deliver balanced growth and value creation. We will elaborate on the integrated strategy and how it's driving competitive advantage and results at our Investor Day in November. Now, moving to guidance for fiscal 2025. With one quarter complete, our guidance ranges for fiscal '25 remain unchanged and they are consistent with our long-term algorithm. We continue to expect the environment around us to remain volatile and challenging from input costs to currencies to consumer, competitor, retailer and geopolitical dynamics. On the top line, we are maintaining our organic sales growth guidance in the range of 3% to 5%. We continue to expect the markets in which we compete to deliver local currency sales growth in the range of 3% to 4% for the year and our objective remains to grow organic sales modestly ahead of the underlying growth of these markets. As a reminder, when you're modeling all-in sales, please remember to include the impact of divestitures from last fiscal year. This was an 80 basis point drag in quarter one and will also impact the balance of the fiscal year. On the bottom line, our core EPS guidance range for fiscal '25 remains at plus 5% to 7% versus fiscal '24 of a core EPS base of $6.59. This guidance equates to a range of $6.91 to $7.05 per share. Our outlook for commodity costs and foreign exchange have each improved modestly since our initial guidance for the year. We are now guiding for a commodity cost headwind of approximately $200 million after tax, which equates to a headwind of $0.08 per share for fiscal '25. We are forecasting foreign exchange to be in line with the prior year. We continue to expect lower non-operating income benefits this fiscal year and a somewhat higher tax rate versus the prior year. Combined, these are additional $0.10 to $0.12 headwind to core EPS. We expect adjusted free cash flow productivity of 90% for the year. We have plans to pay around $10 billion in dividends and to repurchase $6 billion to $7 billion in common stock, combined, returning $16 billion to $7 billion of cash to shareholders this fiscal 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, major supply chain disruptions or store closures are not anticipated within these guidance ranges. To conclude, the earnings and cash results in the quarter keep us on track with our fiscal year guidance ranges, and we are doubling down on all levers to accelerate growth in the coming quarters. We continue to believe the best path forward is excellent execution of our market constructive strategy with a focus on balanced top and bottom-line growth and value creation, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners. Coupled with a strong productivity plan, the earnings power and value-creation potential of the company, we believe are as strong as ever. Finally, as I mentioned, we are hosting our 2024 Investor Day here in Cincinnati on November 21, and we hope you can join us in-person or online. With that, we'll be happy to take your questions.

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 the benefit of cycling the challenges; you'll start to have some more deceleration in markets where we had strength, US and Europe focus markets 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?

Good morning, Steve. Hope you're well. Yeah, let's maybe start with the years before we get into the acceleration on the quarters. If you step back, we did deliver last year on guidance or above guidance for each of the metrics that we had outlined in our guidance: organic sales, core EPS, free cash flow, cash to shareholders. And as we had telegraphed in December, we saw these headwinds early on: China, SK-II, Nigeria, Argentina, the Middle East. And despite those headwinds decelerating quarter three and quarter four top line performance, we said we would deliver within guidance range, which we did. We also were clear that these headwinds would be with us through the front half of this fiscal year. So a slower top line growth versus expected average for the fiscal year in the front half is not a surprise. It's actually what we expected within the guidance range. And that's, I think, the part of the guidance that was clear to us. As you rightly point out, I think the level of deceleration in the Middle East and in China is still volatile. More importantly, if you look at the rest of the portfolio, if you look at US, Canada, Europe focus markets, Europe enterprise markets, Latin America, those regions constitute 85% of our sales base. And these regions in aggregate are growing 4% in quarter one on a 10% base on quarter one last year. North America sales over the past five quarters were consistently up 7%, 5%, 3%, 4%, 4%. Europe is growing on a 7% average over the past five quarters, 3% of that from a volume growth standpoint. We are growing or holding volume share in all of these regions in aggregate. So I think the core of the business, 85% is as strong as we could wish for. It's growing 4% and it's been growing at that pace significantly with very high base period comps. The last thing I'll leave you with on the 85% of the business that is not impacted by any external factors, we have probably the strongest innovation out there in the second half that we've seen in a long time. So a combination of very strong structures in each of these markets, very strong innovation in the second half and easing comps in the base give us confidence that we can see a sustained growth and also some level of acceleration in the core of the business. The volatility, as you pointed out, is entirely introduced by China and by the situation in the Middle East. And the way we think about the guidance is if we annualize and when we annualize these base effects in quarter two and quarter three, we will get to the midpoint of guidance. If we see more than annualization and some level of improvement in the situation, that could get us to the top-end of the guidance. When we see the situation continuing to decelerate, that would point to the lower-end of the guidance. That's the very simple logic. What you will find in all of this is a strong belief that the core 85% will continue to grow in line with what we've seen and grow stronger with innovation in the back half.

Great. Thanks so much. So, just a follow-on on Steve's thought process there, Andre, your response. And 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 slowing in the macro environment, which just feels a little bit contrary to what we're hearing from some other consumer companies. Thanks.

Good morning, Lauren. When we discuss our consumers, we focus on the categories we've chosen for a reason. These are daily-use categories where product performance holds significant importance because consumers realize that the cost of failure is often greater than the premium they might pay for reliable products. This reasoning drives consumers to remain committed to P&G and encourages them to trade up, which is evident in our growing market share in the US, both in volume and value. We have consistently been able to encourage consumers to upgrade within our portfolio, and we are introducing more innovations aimed at enhancing performance and superiority across various categories and brands. This trend is mirrored in Europe, where last quarter's growth rate was 5% year-over-year, excluding inventory effects, and we are observing stabilizing to growing volume share trends along with strong innovation in the latter half of the year. In Latin America, we are stabilizing; we have mentioned growth in our two largest markets, Brazil and Mexico, on a 14% base, and we anticipate that market growth in Latin America will return to mid-single digits, around 5% to 6%, which is already coming to fruition. All our data and the plans our teams are executing now and into the second half give us confidence that we can maintain momentum at the current rate, which implies an acceleration in year-over-year comparisons with easing comparisons. While everything can change and there are no guarantees, we are optimistic that the 85% of our sales is either holding steady or strengthening as the year progresses. You are correct that China and the Middle East are the least stable markets, hence the volatility introduced in our guidance range. The most effective way to increase our chances of improvement is to concentrate on the fundamentals, and that's what we're doing. In China, we’ve streamlined our portfolio to focus on the brands with the best growth potential. We are revamping our go-to-market strategy with distributor partners to enhance coverage and its quality. Our portfolio features strong innovation, which is beginning to revive the categories. The innovation in Head & Shoulders and Pantene is showing success, our baby care products continue to perform well, and SK-II is advancing with the launch of its super-premium offering and resuming national marketing support. We are heading in the right direction, yet the macro conditions remain uncertain and we will need to monitor developments closely. The situation is comparable for the Middle East, which is why we have established a range within our guidance. Overall, we are confident, but you are right to note the existing level of volatility, which we hope we have communicated adequately.

Hey, good morning.

Hey, Dara.

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.

Thank you, Dara. Let me start with the US and then expand a bit. The opportunity we see in the US remains substantial. Currently, we observe sustained market growth in the range of 3% to 4%, which is slowing down from the 5% to 6% range we experienced in previous years due to decreasing pricing components. However, it's positive that volume is increasing and maintaining strong growth. We anticipate that the market will stabilize in the 3% to 4% range. Our goal is to continue propelling our categories and drive market growth beyond that range to not only expand but also increase our market share. There are multiple avenues for growth. For starters, we have identified a $5 billion opportunity in reaching consumers that we do not fully serve yet. We are concentrating on this by being more deliberate about understanding what these specific consumer groups need, how to address those needs with product solutions, how to communicate them effectively, and where to distribute our products to connect with these consumers. We believe that innovation in product offerings, communication, and market strategies will be crucial for capitalizing on this opportunity. Many of our categories still show significant potential for increased penetration. For instance, while fabric enhancers represent a business worth over $1 billion, household penetration is only about 30% for liquid fabric enhancers and around 20% for beads. This indicates a major growth opportunity to boost household penetration by making these products more attractive to a wider consumer base. The power oral care category is another example of underpenetration; our power oral care line boasts a new claim of removing 100% more plaque bacteria, with that business growing at 8% and global share increasing by 2%. These are just a few examples of the growth potential we see in the US, and the same holds true for Europe. However, some markets in Europe have negatively affected performance, such as France, where recent legislative changes regarding promotions have had a significant impact, resulting in an 11% decline. Normalizing this will not only present a similar growth opportunity as in the US but will also contribute to the anticipated acceleration. Regarding the 15% of the business, we expect to annualize most of these effects. We are seeing stabilization across categories, though there are quarter-to-quarter fluctuations in China due to shifts in key consumption periods. Our general expectation is that over the next few quarters, we will begin to annualize not only the SK-II brand but also the significant market contraction in China, aiding in the overall stabilization. The same applies to the Middle East. Importantly, we are proactive in enhancing every aspect of our operations, from innovation to market strategies and media both in the Middle East and China.

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?

Yeah. Good morning, Bryan. Look, I think the main driver of our gross margin progress will continue to be productivity. You see a 170 basis points contribution to gross margin in the current quarter. And I expect that level of productivity contribution to remain or accelerate as we get to our target of $1.5 billion of COGS savings throughout the year. We continue to have an effect from SK-II and SK-II is down 35% in the quarter. So it's a significant impact when you think about the gross margin that business contributes. So the other driver here is as we see annualization of the SK-II effects that will help gross margin going forward. To the inflation question, there is some level reflected easing inflation. The majority of that, I think, will spread throughout the year. Again, our P&L variance holding policy plus contracts generally make for a six to nine months delay from actual commodity inflation to it flowing through our P&L. So that will be a help, I would probably model towards the latter half of the fiscal year.

Hi, good morning, Andre. I wanted to ask specific questions about the baby business and the family care business. The baby segment has faced pressure for several quarters. Can you discuss the durability of this pressure, particularly in terms of geographic differences between China and the US, and what the path to improvement looks like even if birth rate trends are not favorable? Additionally, regarding the family care business, it appears to have experienced around 11 consecutive quarters of growth, but pricing is likely to provide less support moving forward. It seems there was no real pricing adjustment in the latest quarter. Can you address the sustainability of these growth rates for family care? Also, did you notice any impact this quarter from stock-up activities related to port congestion and storms? Should we anticipate this trend going into the next quarter, or is it something we should keep in mind for the near future in that segment? Thanks for discussing baby and family care.

Great. Thank you, Chris. Let me start with family care, maybe. The business model in family care is very stable and sustainable. And the main driver here is to contribute to category growth. That's really the job of the business. And the way to do that is to drive innovation. The innovation is generally an improvement in the substrate, so an improvement of the Bounty substrate or the Charmin substrate, which leads to the ability to then down count sheets of the roll, increase the roll diameter or the roll size. So consumers have actually more products available to them, and that is an ever-repeating cycle of innovation driving category growth. That cycle has been working for decades. I expect it to continue to work the same way. The innovation capability of the technology in family care, which is unique to P&G, is by far not exhausted. And so we have runway in terms of the innovation we can drive. And again, the model has proven to be very sustainable over decades through different economic contexts. On the stock-up situation, we saw a quick run-up with a port strike, but it didn't really have a material impact on this quarter, nor are we expecting any impact on last quarter. It was very short-lived. So therefore, again, no impact, current, no impact next quarter. Baby care has been subject to decelerating or decreasing birth rates forever. That is not a new dynamic. It's a dynamic that has existed within the baby care category for a long, long time, as long as I've been associated with it, which is a long, long time. The way to create value and growth in baby care is not volume growth. It is really to provide superior propositions for consumers and thereby trade them up into higher order benefit spaces and create value from a market perspective and from a share perspective that way. When we do that successfully, even in the most challenging environments, we can grow. A case in point would be China. China has the fastest deceleration in birth rates, but with a very strong portfolio that is innovating across all tiers, we have been able to consistently grow sales and share in China. So when the business is innovating in line with what consumers are looking for, communicating that innovation in the right way, distributed in the right way, the model works very well. Where we don't, the model stutters, and that sputters. And that's a little bit the situation in North America. We've talked about this before. We have very strong innovation on the premium tier swaddlers and cruise 360. We continue to see share growth; swaddlers is up I think 1.6 share points, Cruise 360 is up 50 basis points or 60 basis points. So that part of the portfolio is doing very well. We have an opportunity to innovate on the mid-tier. We just launched Lowe's Platinum Care. It's too early to tell, but I think it's encouraging to see it in market, and we are working on strong innovation on the baby dry business, and that's the same opportunity that we have in Europe. So the model works, but it requires discipline around strong innovation, and that's what the business is working on. Now that we have full access to lines because we don't have any capacity shortfalls, I fully expect the business to go back to growth here over the next few quarters.

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 for 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 kind of your gradual improvement in the country? And then if I can ask one more on 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.

Thank you, Filippo. Good morning. Predicting the pace of recovery in China is challenging, so we won't make that attempt. This is why we have the range we've communicated. I anticipate sequential improvement due to the annualization effect, which means any deceleration shouldn't entirely counterbalance the base effect. However, that's as far as I'll go. As previously mentioned, if China is simply annualizing, it would align with the midpoint of our guidance. If performance exceeds that, it could lead us towards the upper end. On the other hand, if there's continued deceleration throughout the year, we may find ourselves at the lower end of the guidance range. I won't forecast the pace or direction by quarter. We don't provide quarterly forecasts for a reason; we require some flexibility to manage across quarters. That said, we should logically expect some level of progression into the second quarter, but I want to emphasize that we are still facing headwinds in both the first and second quarters.

Great job in the US and Europe. I want to return to China from a broader perspective. My estimates show that your sales have decreased by 20% to 25% over the past three years, marking three years of consecutive declines. Are there structural changes in the Chinese market or among Chinese consumers that need to be addressed, and what actions are you taking to adapt to those changes? You also mentioned that you're starting to promote the SK-II brand more actively. Are you beginning to see positive signs from consumers and recognition of that brand, and is there potential for growth there? Thank you.

Good morning, Robert. Thank you. There are numerous changes in the Chinese consumer landscape that we need to consider, and our team is actively working on this. Online shopping continues to play a significant role in our business, with a notable transition towards Douyin, which requires a different approach to building brand equity and communicating value compared to other digital channels. Additionally, the brick-and-mortar segment is shifting toward club stores, grocers, and supermarkets. We are in the process of strengthening our distributor partnerships to effectively reach consumers with the right products, pricing, and on-shelf availability across our offerings. Consumer preferences for benefits are evolving; for instance, in the mass skin care sector, the previously popular toning products are now giving way to anti-aging and multi-benefit solutions. Therefore, we are adapting our innovation portfolio to align with these trends. The way media is consumed is also transforming, prompting us to update our media strategies and enhance our technical abilities to engage consumers without duplication and at the right frequency. All of these aspects are changing, and I believe the team is successfully adjusting to these new realities. However, as long as the market remains stagnant, we face challenges. Nonetheless, I am confident that we are well-positioned to succeed in China and are performing relatively well in accordance with the market. Regarding SK-II, while it's still early to identify significant recovery, we are seeing a reduction in previous issues. We have undertaken the right initiatives to rebuild the brand's equity, concentrate on effective campaign messaging, activate our most loyal customers as brand advocates, innovate in both our core and super-premium lines, enhance our presence in department stores, and invest in beauty advisors. Early indicators are looking promising, but I think we should allow ourselves some time before we call it a definite recovery.

Great. Thanks. Good morning, Andre. I wanted to pivot. So with respect to areas that you can control, I wanted to ask about market share performance. And if I'm not mistaken, I think the comment was earlier in 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 22% organic sales in the 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 shares at KPI within the organization. And then two, and I think maybe more immediately, what you see as the greatest areas of opportunity to elevate the company's market share performance. Thank you for that.

Good morning, Kevin. Yeah. Look, the market share trend, I think, is generally positive. It wasn't necessarily a surprise that the market share would decrease in terms of number of category country combinations that are growing or holding share simply because of the level of pricing that we have to take and some of the dynamics where, for example, retailer brand pricing in Europe significantly lagged in terms of timing. So going ahead and leading in many of those markets because we simply are the category leader generally results in short-term share effects that are less favorable and I think that's to a large degree the deceleration in terms of number of category country combinations that you see growing. I would say the way we talk to our teams about it is what our job is to grow markets. And the best way to grow markets is to increase household penetration of our categories. The earliest indication to see whether we're increasing household penetration is volume share. So it is an important measure for us. If it is a measure of creating incremental consumption and that's what we ultimately bring it back to. So it's an early indication for us to say, okay, if we don't grow volume share, we're probably not growing household penetration. But the real measure that we're going after is panel-based household penetration, which is the best measure of how we doing our job in growing markets. I think we're making progress here. The European results are, as I mentioned, both in focus markets and enterprise markets, we are holding to growing volume share now, which was very important to see. That's where the private-label pricing effect was most pronounced. I'm most pleased about the progress in the US where we continue to grow both volume share and value share. And I also think the plans in Latin America are very strong in terms of innovation. So I have confidence that the share progression there will be positive.

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.

Yeah, I think it would be a combination, Peter, of annualizing the headwinds and maintaining and slightly accelerating the run rate in the 85% of the business, which on an easier comp would then increase obviously the year-over-year quarterly growth. It's hard to say how these two pieces exactly will work together, but conceptually, we know two things need to be true. One, we need to annualize, and we need to annualize at the end of quarter two and quarter three. Number two, the 85% of the business needs to keep running at the pace that it's running at.

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 is valid in the sense that your skin care performance, right, it was like I believe more than 20% negative in total. And then you're annualizing and if I'm doing the math correctly, that on itself is 700 basis points to 800 basis points sequential easiness in guide now in comp. So, would that to say, that needs to be slightly better. So let's say the minus 22%, call it becoming mid-teens 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 of fiscal. Is that the way we should be thinking?

Andrea, I want to clarify that the guidance is a range of 3% to 5% for the topline. The scenarios you're describing could lead to either a 5% or a 3%. What I am saying is that the range remains viable. To achieve the 5%, we need to see significant acceleration, particularly in China and the Middle East, along with stability in our core business. I believe I've outlined the assumptions, but the range still stands. My confidence in 85% of the business comes from its consistent performance over five, and in some cases six, quarters at these growth rates. This track record supports my belief in our ability to maintain those rates. Additionally, our share trajectory is on an upward trend, and we have more innovations on the way. While there are various scenarios that could lead to a 3% outcome, there are also multiple paths that could lead us to a 5%.

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 in 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?

The overall market situation remains stable with little change compared to previous quarters in both Europe and the US. We are continuing to focus on promotions that we hope will drive market growth and category growth in areas with lower penetration, while also combining them with high-penetration categories to add value for consumers and encourage trial. The competitive environment is still stable and slightly below pre-COVID levels. The negative mix in beauty is indeed influenced by SK-II and, in grooming, we've seen a shift. Last year, we had strong sales during a record appliance period, but now we see more sales in the Gillette portfolio. There are no signs indicating that consumers are trading down or that there's increased price-based competition at this time. The categories we're in have strong propositions that reassure consumers about product effectiveness, along with varied pricing options to cater to different cash outlays. As long as we continue to innovate and maintain our superiority, I believe we will be fine. We are monitoring the situation closely and have not seen indications that consumers are not with us. Private label shares are flat, and in the US, the private label value share has actually decreased from 16.2% to 15.7% over the past 12 months. Overall, this suggests a stable consumer and a steady price promotion environment.

Yeah, thanks. Good 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 skin care category. I guess I'm curious about how you think about the brand. I think you've talked before, maybe not last quarter or quarter before that about work that you had done about brand relevance and awareness and intent to purchase improving and clearly it's not, I guess 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 be relevant? 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 kind of 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 SK-II specifically within that market would be helpful. Thank you.

Yeah. Thank you, Mark. SK-II as a brand continues to be very relevant. The core benefit and the core ingredient is the reason to believe that benefit is delivered plus the efficacy shown in actual consumer experience over decades, I think, is still the most relevant proposition and as close to irresistible superiority that is actually ingredient driven in the category as you can find. And the consumer is playing that back. We had very strong results in SK-II outside of China and outside of travel retail. And I think the effects that we're seeing, which is dragging the brand down is the unique combination of a Japanese brand in a Chinese context when there's conflict and therefore a negative sentiment towards Japanese brands in aggregate. That's unique to SK-II and I think that's what's driving the effect. When the business is down to that degree, there is a level of investment choice that needs to be made, which the team has done. But we've encouraged them to continue to invest at the right level to rebuild the equity of the brand, specifically in China and in travel retail, which I think they are doing well. So I've got not much more to add other than to say the brand is very relevant. The core of the brand is being strengthened with the core messaging of what PITERA is and what the benefit is that the brand delivers. The addition of a super-premium tier, I think, is highly relevant for those consumers. They have the spending power and they're looking for the best possible offering, and price is a connotation to quality and efficacy in these categories. So, I feel very good about the core of the brand. And obviously, the Japanese-Chinese situation is unique to SK-II, which is what we're annualizing beginning quarter two.

Yes, thank you. Good morning, everyone. Andre, I have a quick housekeeping question followed by a broader inquiry. You mentioned in your prepared remarks that you are not factoring in any store closures into the guidance, which is what I understood. Given the current situation in the drug channel, I wanted to know if you have considered some of the dynamics happening in that market. Now, the broader question is about innovation. P&G seems to be uniquely positioned with real disruptive innovation coming from the company, more so than the overall sector. Could you provide us with an update on Olay Melts and Tide evo, and how that initiative is developing? Additionally, over the next one to three years, can you share any insights about similar disruptive innovations in the pipeline, even if you can't disclose specific details? Thank you.

Thank you, Nik. As the guidance says, we've not assumed any major store closures in the US. Obviously, when there's selective store closures, that's part of the normal business, so I will leave it there. On disruptive innovation, Olay Melts is doing very well. Evo test market is also doing really well at or above expectations in the test market, but again, it's a test market so early-on. We are making progress on the industrialization of evo. So the ability to produce at-scale to be able to launch at a national level and that is also progressing as planned. So I would say both based on fiber spinning technology are very promising propositions and both seem to resonate very well with consumers. And as you point out, both are highly proprietary to P&G. And the form itself has a lot of runway when you think about our product portfolio. In terms of broader disruptive technology and being able to advance our competitive moat from an innovation standpoint, we're going to spend a lot of time on that during Investor Day. So I won't go into the details here, but it will be a big part of the conversation in November.

Thank you. I want to discuss the noticeable differences in performance among various categories, particularly in beauty, which seems to be more affected by underperforming markets. Regarding fabric and home care, as you mentioned earlier, could you elaborate on your different approaches in these areas compared to others? It appears that your innovations in fabric and home are more effective. Why do you think this success isn't translating to other categories like baby or beauty, excluding SK-II for now? It seems that competition in these categories remains strong, if not increasing. Thank you.

Yeah, good morning, Olivia. Look, there’s a reason why we have a portfolio of 10 different categories. They at times perform at different levels, but operating the global portfolio will allow us to still deliver algorithm with even some ups and downs across categories. Specifically on your question on beauty, I think it's important to look at beauty excluding China and SK-II. If you look at that picture, North America is growing 8%, Europe 6%, enterprise markets 8%. The growth in North American hair care is 9% on a 12% base, share is up 90 basis points, global APDO is growing 11%. In North America, 9%, we've grown native sales 10 times over the past five years. So I think the team is doing a tremendous job reading the consumer, developing propositions that match consumers' needs, communicating in the right way, bringing them to market and that's I think what's reflected. But it's hard to overcome with a significant part of your business in China, those headwinds. Fabric and home care is doing a tremendous job in innovation. We've talked about evo, we've talked about fabric enhancers. The runway is also huge across both categories because they both represent relatively big opportunities in terms of incremental household penetration. When you think about Swiffer, for example, PowerMop is a new product to the category and is driving significant category growth, is up 9%. Downy and Tide Rinse are new adds to the laundry regime as odor removers and they are the number one driver of category growth. So when we find those opportunities, that accelerates business market growth and is sustainable. And we have pockets of that in baby care when you think about Ninjamas, for example, which is a bedwetter category, which was very underserved. When we innovated in that category, we grew categories. We drove category growth of 6% to 7% and took significant share. And so there are opportunities in all of those categories. Will they all be at the same time and so we see consistent growth across all? No. But all these categories are rich with opportunity to drive innovation, drive category growth and delight more consumers.

Good morning. Thank you for the question. I would like to get more insight into your relationships with your retail partners. How are inventory orders performing? Have there been any changes over the quarter, and what trends do you anticipate for those orders in the coming quarters? Additionally, how do you perceive the overall retail environment in the US, Europe, and Latin America, and how do these regions differ? Thank you.

Thank you. Inventory levels at retailers, broadly speaking, are stable. There's no major movement. The only effect worth calling out was the base period effect in Europe where some retailers increased inventory levels in quarter one of last year because we had announced a supply chain program that was cutting over at that time. Other than that, I would characterize it with relative stability, nothing to report. The general retailer relationship with P&G is extremely constructive. I would describe it as probably the best retailer relationships we've had as far as I can remember, and that's true for the US, that is true for Europe where we have built strong partnerships with our retailers all under the common objective to grow markets. And the more retailers understand, embrace and see how partnerships with P&G, strong innovation and ability to reach underserved or unserved consumers can help them grow their categories and our categories, that partnership is only strengthening. On the supply chain side, we are building very powerful programs to integrate our supply chains, create more value, reduce inventory levels and cash needed. Those programs are off to a very promising start. And so all of that contributes, I think, to the very positive retailer relationships that we see around the globe.

Hi, thanks for the question. Andre, regarding the $300 million positive benefit related to your outlook for commodity costs, could you explain how you view that in relation to your original guidance? Are you planning to hold it back to allocate it in areas where you need to compete more effectively due to price competition, or do you have more proactive plans to invest that money in growth areas? How do you plan to utilize that benefit?

Look, we're still looking at a $200 million after-tax headwind for the year. So, in relative terms, it's not really healthy year-over-year, it's still a $200 million after-tax cost headwind that we need to absorb. And honestly, the way this works within our structure is the business units control what to do in terms to offset any headwinds or if there are tailwinds how to reinvest and if to reinvest within the business. And so there's no corporate approach to any of this. It's really based on what is best for each of the categories in each of the regions. And therefore, I can't really give you a constructive answer here other than to say it's still a $200 million after-tax headwind. We'll deal with it. It's embedded in our guidance range.

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 kind of base 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 Pantene doing and what are you doing there on the hair care side in China? Thanks.

Thank you, Linda. As I said, the beauty business overall in North America is doing very well. You point to the Olay business, and within Olay, the innovation on super-serums is incredibly successful. The most successful entry in the segment in recent years, and 65% of consumers are incremental to the category, so exactly what we want to see. Melt is very successful, resonating with consumers and that's a new form. So us being able to, I think, communicate the benefit of the form, consumers experiencing it and repeating now is also great to see. Now, we have an opportunity on the core business, specifically on the jar business to rejuvenate the franchise and that's the work that the team is doing with urgency. So recognized an opportunity there and it's being worked. On the hair care China side, strong innovation. We've divested our Vidal Sassoon business. We're now focusing on the three brands we have, Head & Shoulders, Pantene and Rejoice. We have strong innovation launch in Head & Shoulders, premium innovation; we've launched innovation on Pantene. Both are performing very well. Pantene was the number one hair care brand online ahead of Kerastase for the first time in the last quarter. Head & Shoulders is growing share and the plan on Rejoice launching later in the year. So the team is doing great work on the hair care brands. But again, all of this is done in a context where the market is still down. So the most important element here is, as we've said all along, the market needs to annualize and stabilize. All right. Thank you. I hope you agree with us that it's a strong start to the year on the majority of the business. We continue to see the headwinds that we had telegraphed in December, but we are confident that even with those headwinds and the strength of the core of the business, we will be able to deliver within guidance range on all metrics. We will be available for more questions during the day. So feel free to reach out and thanks for spending the time with us. Have a great day.