Q3 2025 Procter & Gamble Co Earnings Call
End
Speaker Change: Good morning and welcome to Procter & Gamble's quarter-end conference call. Today's event is being recorded for replay.
This discussion will include a number of forward-looking statements.
Speaker Change: As required by regulation G, Procter & 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.
Speaker Change: Procter & 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.
Speaker Change: Now, I will turn the call over to PNG's Chief Financial Officer, Andre Schulten.
Speaker Change: Good morning, everyone. Joining me on the call today is Jon Chevalier, Senior Vice President Investor Relations.
Andre Schulten: I will start with an overview of third quarter results and spend a few minutes on strategy and innovation were closed with guidance for fiscal 25 and then we will take your questions
Andre Schulten: Third quarter results on both the top and bottom lines were heavily impacted by consumer and retail volatility during the quarter, primarily in the US and Europe
Andre Schulten: Organic sales for the quarter grew 1%, volume and mix were in line with prior year and pricing at one point to organic sales growth.
Andre Schulten: Growth remained relatively broad-based across categories, with seven of ten product categories holding or growing organic sales for the quarter. Personal healthcare was up high single digits.
Andre Schulten: Skin and personal care group, mid-singles, fabric care, or a care, feminine care, grooming and hair care were each in line to upload single digits. Family care, baby care, and home care were each down low single.
Andre Schulten: Organic sales and focus markets grew 1% and enterprise markets grew 2% [inaudible]
Andre Schulten: which is evident in published market data and trade inventory reductions which we discussed at Kagney.
Andre Schulten: One encouraging sign is that we returned to shipment levels consistent with the case of consumer offtake in the month of March. Another positive sign is that market share held up well within the quarter. [inaudible]
Europe focused market, organic sales were up 1% [inaudible]
Andre Schulten: As our category saw similar impacts from consumer confidence, France continues to be a significant headwind with organic sales down high teens in the quarter, versus the base period that grew 20%.
Andre Schulten: We have now annualized the implementation of the Eglim-3 law in France that will have easier
Andre Schulten: Greater China Organic Sales Decline 2%, a modest step-up on the path back to growth in the region, notably SK2 and Greater China Group Double Digits, behind strong consumer response to the super premium LXP innovation.
Andre Schulten: and the supporting marketing campaign, underlying market conditions remain relatively soft, but we are encouraged by the progress we're seeing in several categories.
Andre Schulten: and the Asian Middle East Africa region declined low single tensions in the Middle East have remained high and continue to put pressure on markets and US brands.
Andre Schulten: Global aggregate value share was down modestly versus prior year with 27 of our top 50 category country combinations holding or growing share for the quarter.
Andre Schulten: Core growth margin was down 30 basis points and core operating margin increased 90 basis points, currency neutral core operating margin increased 100 basis points,
Andre Schulten: We maintain strong margin investment levels, supported by 280 basis points of productivity improvement, including adjustments to planned compensation awards given year-to-date trends versus our targets.
Andre Schulten: Adopted pre-cache for productivity was 75%. We returned nearly $3.8 billion of cash to share on of this quarter, $2.4 billion in dividends at $1.4 billion in share repurchases.
Andre Schulten: Earlier this month, we announced a 5% increase in our dividend, again reinforcing our commitment to return cash to share on us. This is the 69th consecutive annual dividend increase, and 100th 35th consecutive year PNG has paid a dividend.
Summarize the Third Water, the team managed well with... [inaudible]
Andre Schulten: Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line. Please stand by while we reconnect the speaker line. Thank you for your patience. One moment.
[inaudible]
Speaker Change: Ladies and gentlemen, thank you for your patience. I have reconnected the speaker line, and we're off the speakers to continue, Andre.
Speaker Change: We are picking up at the strategy comments. We're not exactly sure where we got disconnected, but we can follow up in the Q&A section if there are any elements on the results that we need to pick up on.
Speaker Change: On the strategy side, now is the time for investment in and flawless execution of our integrated growth strategy.
Speaker Change: Delivering superiority across every part of our portfolio is the path to growing categories providing value to consumers and customers and creating value for share owners.
Speaker Change: We must do this across all value tiers, where we play all retail channels and all consumer segments we serve as we've done in the past.
Speaker Change: We will continue to actively manage our portfolio across markets and brands to strengthen our ability to generate US dollar based returns in daily use categories where performance drives friendships.
Speaker Change: And we will continue our efforts to constructive disruption of ourselves and our industry changing, adapting and creating new ideas, technologies and capabilities that will extend our competitive advantage.
We are empowering our highly capable and agile organization.
Speaker Change: that are ready to step forward to create value for all consumers, customers and shareholders.
Speaker Change: The long-term focus on the strength of our brands, business and categories is the best way to position ourselves for stronger growth when the economic climate and consumer confidence improves.
This starts with strong innovation plans.
Speaker Change: The new formula works in just one day to dissolve the bonds that lock stains in your teeth and better prevent stains from reoccurring. Deep stain remover is off to a great start and is driving craft market share growth in the US toothpaste category. [inaudible]
Speaker Change: We launched our most advanced power toothbrush, or BIO10, early last year, and we followed up with IO2, the first IO designed to help consumers trade up from a manual toothbrush to a power brush.
Speaker Change: The combination of premium and entry point innovation is working well with Aurobi Power Brush share up 50 basis points in the US.
Speaker Change: We also have strong innovation across all price tiers in fabric care. [inaudible]
Speaker Change: Tight oxyboost power pots are launching this quarter. Oxyboost includes two times the oxy power to provide tight most powerful clean.
Speaker Change: In addition, we have innovation at the mid-tier of our detergent price range, gain older defense detergent, lift away tough odors at the source and includes 40% more freshness ingredients.
Speaker Change: Finally, Tide Evo, our new laundry detergent developed on our breakthrough functional cybers platform continues to exceed expectations in our now expanded Colorado test market.
Speaker Change: Evo offers superior cleaning performance in fully recyclable packaging with no plastic bottles or water.
Speaker Change: In the doors where Evo is present, it's proven to be highly incremental to category growth despite its premium pricing. Great progress across all criteria we set for the test market, including manufacturing readiness.
We have many other innovations launching right now.
Speaker Change: In grooming, upgrades to blades and razor handles on Gillette Labs and Venus.
Speaker Change: And Venus now includes shower hooks with all-razor handles. Tempex now has a 20% longer leak guard braid for improved leak protection. And always new pocket flex foam full-size protection in a tiny pack, making it incredibly convenient for on-the-go use.
Speaker Change: Pampers has innovation coming in essentially every element of its portfolio over the next year. Homecare has innovation this spring on the breeze, darn cascade, Mr. Clean and Swiffer, more than we have time to discuss in this call in detail.
Speaker Change: We chose to maintain our innovation plans during the early stages of Covid.
Speaker Change: We did the same in the early stages of the severe inflationary cycle a few years ago.
Speaker Change: It's unclear how long this period of consumer softness will last but we know PNG will be stronger if we keep innovation across every part of our portfolio and keep investing to drive consumer interest and demand in our categories.
Speaker Change: At Market Leaders, in many of our categories, we know our retail partners rely on PNG innovation to drive market growth. In difficult times for consumers, this role is especially important. [inaudible]
Speaker Change: and offers a unique opportunity for our brands to differentiate themselves in terms of both performance and value.
Speaker Change: We will maintain a long-term view which leads us to our revised outlook for fiscal 25.
Speaker Change: As we've highlighted, 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, and now tariff impacts.
Speaker Change: I'll talk through each of these and I'll get to terrace in the end so please bear with me.
Speaker Change: On the top line, we now expect organic sales growth of approximately 2% for the fiscal year, with one quarter remaining, this deducts to fourth quarter organic growth of 0.5% to 4.5%
Speaker Change: A key determinant in where we land within that range is underlying market growth. [inaudible]
Speaker Change: Regardless of whether markets remain weak or accelerate back to prior growth levels, we expect to grow our brands modestly ahead of underlying markets.
Speaker Change: On the bottom line, our outlook is now for core EPS of $6.72 to $6.82 per share for the fiscal year. This equates to core EPS growth in the range of 2 to 4% for fiscal year 25, versus prior year core EPS of $6.59. This equates to core EPS of $6.
Speaker Change: This guidance deducts to a range of 137 to 147 for the fourth quarter.
Speaker Change: Our outlook for commodity costs remains unchanged, forecasting a commodity cost headwind of approximately $200 million after tax, which equates to a headwind of $0.8 per share for fiscal 25.
Speaker Change: Since last earnings, foreign exchange rates have eased modestly, we are now estimating a headwind of approximately $200 million after tax, which equates to a headwind of $0.8 per share for fiscal 25.
Speaker Change: We continue to expect lower non-operating income benefits for the fiscal year. As a reminder, the fourth quarter base period includes the gain from the divestiture of our Vidal Fasun brand in China.
Speaker Change: When our forecasting only modest headwinds from net interest income and expense and an effective tax rate roughly in line with prior year combined these below the line items are around 4 cents headwind to core EPS.
Speaker Change: We continue to forecast the justify cashflow productivity of 90% over here, and we have plans to pay around $10 billion in dividends, and to repurchase $6 billion to $7 billion in common stock. Combined returning $16 to $17 billion of cash to share owners this fiscal year. We continue to forecast the justify cashflow productivity of 90% over here.
Speaker Change: This auto assumes a range of 100 to 160 million in BT tariffs impacts in the fourth quarter or three cents or five cents per share.
Speaker Change: This assumes current tariff rates hold for the full quarter, when products and materials inbound to the U.S. and upper tariff impacted markets will be affected, and when those goods will be recognized in our P&L as finished product of sold to retailers.
Speaker Change: Currently, the largest US tariff impacts are coming from raw and packaging materials and some finished product source from China.
Speaker Change: While China accounts for just over 10% of total imports exposure to the US, the size of the tariff rate makes the cost impact more substantial.
Speaker Change: The largest impact of responsive tariffs on US exports is from the finished products shipped from the US to Canada.
Speaker Change: We'll be looking for every opportunity to mitigate the impacts including sourcing flexibility and productivity improvements. We also need to consider some level of consumer pricing in effective categories and markets.
Speaker Change: The guidance we share today is based on current market growth rate estimates, commodity prices and foreign exchange rates, significant additional currency weakness, commodity cost increases, geopolitical disruption, major supply chain disruption, store closures or tariff changes are not anticipated within the guidance range. The guidance we share today is based on current market growth rates and foreign exchange rates.
Speaker Change: To wrap up, we're pleased with the results DNG people have delivered in a very challenging and volatile environment and we remain focused on excellent execution of our integrated dynamic and market constructive strategy.
Speaker Change: Innovating and investing to drive market growth and balance top and bottom line growth and value creation with that will be happy to take your questions.
Speaker Change: If you have a question, please press star followed by one on your fan. If your question has an answer or you would like to withdraw your question, please press star followed by two.
Speaker Change: Our first question today will come from Lauren Lieberman, of Barclays. Please go ahead.
Great. Thanks so much and good morning.
Speaker Change: You know, kind of what are you planning to do differently? I know you talk about all the innovation, but to support revenue growth and market share is things that feel like we're probably going to get worse from here from a market growth standpoint. Thanks.
Good morning, Lauren.
Speaker Change: Yeah, good to start with the consumer. If you go back, as you're right, they say, when we were at Cagney, which was kind of around and middle of February . [inaudible]
Speaker Change: We highlighted the inventory drawdown that we saw, but consumption levels were stable. Since then, the consumer has been hit with a lot of volatility, market volatility, that impacts their portfolios, their 401ks.
Speaker Change: All the divisiveness and nationalistic rhetoric that we saw around the world, uncertainty on tariffs and the impact on prices and availability of goods. So the consumer has been hit.
Speaker Change: with a lot and that's a lot process. So what we're seeing I think is a logical response from the consumer to pause.
And that pause is reflected in retail traffic being down.
Speaker Change: It's also reflected in somewhat of channel shifting in the search for the best value, shifting into online, shifting into big box retailers and shifting into the club channel in the US specifically.
Speaker Change: All of that put together means consumption levels are down in both Europe and the US.
Speaker Change: The US has been growing over the past 12 months, around 3% in terms of value consumption, what we've read through February and March was closer to 1%.
Speaker Change: Glass half full, PNG is growing or holding share, Europe volume share continues to be up in the most recent reading about 30 basis points.
Speaker Change: US shares are holding, private labour shares in both regions continue to trend down and actually accelerating downwards in Europe
Speaker Change: So the message we draw from this is that superiority of our brand, delivering performance to consumers and uncertain times is still value to consumers.
Speaker Change: They are choosing our brands and so we take encouragement to double down on our strategy because we see that as the only viable path through this level of volatility that we are experiencing.
We're doubling down on innovation, we're doubling down on superiority.
Speaker Change: We are heavily focused on driving productivity and heavily focused on ensuring our organization can be as agile and externally focused.
Speaker Change: as possible to be close to consumers and close to markets so that we can grow the business.
for all those jobs to be done that consumers don't want to fail in. [inaudible]
What we...
Speaker Change: Focus on as well is a longer-term outlook. You've heard us talk about our determination to remain invested in the business, which we think is absolutely critical.
Speaker Change: So even if we solve volatility in the short term consumption, we are determined to remain invested both from a brand building innovation and go to market perspective. And we continue to focus in a volatile environment on the two to three balance between top line and bottom line growth.
and that's what you see I've talked about an execute. Thank you.
Speaker Change: Our next question today will come from Bryan Spillane of Bank of America. Please go ahead.
Thanks, operator. Good morning, Andre. I guess.
Speaker Change: I had a question just around how we should begin thinking about.
Speaker Change: Approaching, Modeling, Forecasting for 26 and so maybe can you give us a little bit of perspective on one just category growth rates now and you know as we're kind of thinking about exit rates in the 26 and then as we're looking at this year as a base so fiscal 25 is a base. [inaudible]
Speaker Change: How much more incremental, how many more incremental levels are there to pull as we look at next year in terms of either offsetting the incremental cost of tariffs?
Speaker Change: or, you know, demand begins to be subdued. So, just trying to understand from you just what are some of the factors you're looking at and that we should consider as we begin to kind of look at our model out past the end of fiscal 25.
Yeah.
Good morning, Brian .
Speaker Change: Stepping back at the global level, obviously the reduction in consumption levels that we saw in the US and in Europe have an impact at global growth rates.
Speaker Change: Over the past 12 months, we have seen global growth in the range of 3.5%, value growth that is not down to roughly 2.5%.
Speaker Change: , , , , , , , , , , , , , ,
We expect...
Speaker Change: Markets to return to the 3-4% growth rate. [inaudible]
Speaker Change: But it's very hard to predict as you can appreciate with the current volatility we see in all of those sectors I mentioned and respond to Lauren's question when that's going to happen. So we're really taking a longer look at our plan over the next two to three years. [inaudible]
Speaker Change: The levers for us are the same levers that we talk about in our integrated strategy. I think the tariff impacts that are visible to us right now at a growth level are in the range of 1 to 1.5 billion dollars.
so it's not immaterial.
Speaker Change: For us to offset those in the short term, we have to consider productivity, which we will double down on and we have a very strong productivity plan over the next three years that I feel very bullish about.
Speaker Change: We have to continue to invest in innovation and superiority and enable actually more investment in those areas in the short term and the mid term.
Speaker Change: and that innovation that we are pushing out will have to carry some level of pricing.
Speaker Change: If you think about the short and midterm with the uncertainty around tariffs and honestly the difficulty to adjust sourcing formulation or even asset location,
Speaker Change: I think it's clear that productivity, innovation and pricing are probably the short-term levers that we will employ, but looking at all the other levers, including formulation and sourcing changes, obviously as well.
Speaker Change: The fact that we are close to our consumer for the majority of our production, I think is a benefit for us.
Speaker Change: But the number in and of itself obviously is still not immaterial so we'll have to continue to figure out how to do that. So the one piece I would want you to take away is assume category growth rates return to normal levels. [inaudible]
Speaker Change: And we will focus really on a glide path over two to three years to deliver low to mid-singles in terms of top line and mid to high singles in terms of EPS growth.
Speaker Change: The next question will come from Steve Powers of Deutsche Bank. Please go ahead.
It's hey, good morning. So, Andre, you talked about…
Speaker Change: You know, the innovation pipeline strength and the importance of maintaining the momentum on that front. I haven't parsed through all of the math implied in the updated guidance, but could you just talk about you know whether. Thank you, Peter.
Speaker Change: kind of net of everything, the level of investment that you're putting behind that innovation and behind demand, building going forward has changed all in this updated outlook.
Speaker Change: and then whether or not the magnitude has given what you are seeing in the consumer.
Speaker Change: has the nature of that investment change at all in terms of you know advertising versus trade or the like just how you're thinking about the support that you're going to put behind that innovation as you go forward thank you.
Good morning, Steve.
Speaker Change: Investment levels are always adjusted both across regions, markets, categories, brands, and periods because the plans are obviously over here different.
Speaker Change: If you look at fiscal year-to-date investment level, specifically on media and advertising, we are flat in terms of percentage of sales.
Speaker Change: And as we said, we have a very strong innovation pipeline in the balance of the year which we intend to focus all investments on.
Speaker Change: What exactly the dollar spending is we'll adjust as we see the plans unfold but the one thing that is very clear to us is we continue to be committed to fully support the innovation across the fourth quarter.
Speaker Change: I don't view us shifting the mix between advertising and trade promotion.
Speaker Change: Trade promotion always plays a role as we launch new innovation in driving trial but it's mainly focused on visibility and we have a pretty good track record of creating visibility on new innovation without deep discounting.
Speaker Change: The market so far is responding the same way. You see relative stability in terms of promotion depth and frequency both in Europe and in the US.
Speaker Change: and we certainly have no interest in changing that other than driving trial and awareness of the new innovation that we're pushing.
Take a morning.
Speaker Change: So, Andre, you highlighted doubling down on superiority and innovation in this environment. It's obviously served B&G well in recent years.
Speaker Change: With the consumer pressure points we're seeing, if we do start to see more consumer trade down, can you discuss how you see P&G is positioned today versus past cycles? And then also, have you seen any...
Speaker Change: specific geographies of product categories or private level shares picked up so far and you touch on this earlier but you know what's PNG's market share performance been in some of those areas if in fact you're starting to see that dynamic play out a little more. Thanks.
Morning, Dara.
I think we are.
Andre Schulten: We continue to view ourselves as well positioned to serve the consumer even as their value equation might shift.
Andre Schulten: We have a way better portfolio in terms of vertical value offerings from a brand perspective. Thank you very much for your time.
Andre Schulten: And we have a very broad portfolio in terms of price points and tax sizes across all channels around the world. And that's true from China to Europe to North America.
You also see in our innovation that we are...
Andre Schulten: focusing innovation on all value tiers in all categories. As we're innovating on tide, we're also innovating on gain, as we're innovating on swaddless, we're innovating on love and baby dry.
Andre Schulten: And that's actually a good part of the innovation that is launching over the next few months.
is focused on driving innovation across all their uts. [inaudible]
Andre Schulten: So that we conserve consumers and have relevant offerings that are superior versus the relevant competitive set at each price point and price tier.
Andre Schulten: So well positioned there but I would say the teams are paying extra attention to ensuring that we have the innovation calibrated with the consumer environment in mind and the support models calibrated in the same way. I'm sorry, I'm sorry
Andre Schulten: That I think has enabled us through all of these periods of volatility. If you go back pre-COVID, COVID, inflationary cycle with a 10% of pricing, we've grown share.
Andre Schulten: or health share across all of those periods. And even in this current period, [inaudible]
Andre Schulten: with obviously some variability, if you look at a month, we continue to hold on Groschaire. [inaudible]
Andre Schulten: Private Labor Shares continue to trend down which is not the answer but it is a good indication that in a more value conscious environment that portfolio is holding up well.
and Klopp.
Andre Schulten: Again, in those channels, we're able to serve the consumer, hold share and grow categories.
Andre Schulten: and if the consumer grows toward dollar channel discounters, we're able to have the relevant offerings there. So...
Long answer, not an easy task.
Filippo Filorni: Our next question is from Filippo Falorni of City, please go ahead.
Filippo Filorni: Hi, good morning everyone. I wanted to ask a broader question around brand sentiment towards American brand around the world.
Speaker Change: Are you seeing any signs other than the Middle East where I know it's been a pressure point for you guys for quite a few quarters?
of some anti-American brand sentiment around the world. [inaudible]
Speaker Change: and specifically on China, we're seeing some improvement there, obviously SK-2 back to growth as you mentioned. Do you see some risk on the other side of the China business, particularly the OLA?
Speaker Change: and the air care business potentially going forward and maybe just some expectation on the growth forward in China. Thank you.
Good morning, Filippo. [inaudible]
We have not... [inaudible]
Speaker Change: and while we see some noise in markets like in Canada, none of that has yet resulted in any change of consumption behavior that we can attribute.
Speaker Change: to any of those dynamics, in many of the markets, and I would argue actually in most of our markets.
Speaker Change: Our brands have been present for 10-20 or 30 years. [inaudible]
Speaker Change: And if you ask consumers, they view them as local brands that they grew up with, not as a US brand that is foreign to them.
Speaker Change: I think that's the case in Europe , that's the case in China, and even in Canada where probably the noise level is the highest consumption has held steady at 4% on a base of 6% in the previous year quarter.
Speaker Change: So nothing to report on that front yet. And China actually were very encouraged because we're seeing in a still tough consumer environment, SK2 accelerating to 11% growth in the quarter.
Speaker Change: behind a strong innovation on the super premium tier of LXP. But even the core tier is responding very well to our communication strategy focused on brand superiority and peterra.
Speaker Change: Ole has picked up and returned to growth in the current quarter, so we now see 2% growth on our Ole portfolio.
Speaker Change: behind innovation on anti-aging, following the trend that the market has made from the shift the market has made from toning benefit to anti-aging benefit. Our baby care business continues to do well.
If you look at Europe's focus markets, the one... [inaudible]
Speaker Change: Structural element, we need to keep in mind, this France is heavily impacting the Eurofocus market results.
Speaker Change: The Igallim Promotion Law was impacted on March 1st of 1924 and and led to heavy loading both from a retail and from a consumer standpoint in that period. If you take that loading effect out
Europe's focus markets would have grown 5% in the quarter.
Speaker Change: So, a long way of answering the question that's not coming through in any of the data that we're seeing either qualitatively or quantitatively will continue to keep an eye on it but our best response to all of this.
Speaker Change: is to have the best brands available with the best value equation, with the best superiority for our consumers and our retail partners.
Speaker Change: The next question will come from Chris Carey of Wells Fargo Securities. Please go ahead.
Chris Carey: Hi, good morning. I just wanted to follow up on one area, then ask a broader question, but regarding Andre, your response, I believe to Brian's question and business.
Chris Carey: You're not giving physical 26 guidance today, fully get that, but the glide pass back to category growth rates.
Chris Carey: I think he had said something like over the next two to three years. Thank you very much.
Chris Carey: Did that imply that, you know, you'd be a bit below historical category growth rates for the foreseen future, including in the fiscal 26, or was there an expectation that category growth would perhaps return to those levels into? Yeah.
Chris Carey: Fiscal 26 with a bit more pricing. I fully realized that there's no crystal ball, but it was kind of this question to clarify the very near term versus the medium term. And if I could.
Your investor day was very much focused on.
Opportunities in North America.
Speaker Change: Hated Europe and coincidentally those are the areas where category growth has slowed and so are you thinking about you know adjusting your playbook at all in light of you know category development or or is it still very much you know a line with the strategy from geographic standpoint that you laid out an investor guy thank you. Thank you very much.
Good morning, Chris.
our playbook
Speaker Change: Ames to deliver balance top and bottom on growth over two to three year period. We won't hit that algorithm every quarter, we won't hit it every year. We look back over two to three year period, we want to deliver that algorithm.
Speaker Change: That is true for how we approach the next two to three years. [inaudible]
Speaker Change: As you said, there is no crystal ball. We don't know what the category growth rate is going to be given all of the volatility that the consumer is facing.
Speaker Change: and we won't guide today. I think the only logical conclusion is a wide expectation in terms of possible outcomes.
a wider range of planning and possible outcomes.
Speaker Change: in terms of the opportunity that we have highlighted during Investor Day.
Speaker Change: What we're currently seeing only means that capturing those opportunities is even more important today than it might have been six months ago.
Speaker Change: So the 5 billion growth opportunity was highlighted in the US by driving a house of penetration of our biggest brands.
Tide
Speaker Change: Further doubling down on new innovation, new jobs to be done that consumers have not yet widely adopted.
Speaker Change: Driving power oral care as an opportunity to increase oral health for consumers across the US with the launch of IO2, converting manual toothbrush users to electric toothbrush users. [inaudible]
All of those opportunities are still there.
Speaker Change: We still see five billion dollars of growth that we can capture.
Speaker Change: And that's why we want to double down on our investment because that's really focused on capturing those growth opportunities and the same is true for Europe . So nothing's changed and that's why you see our work.
Speaker Change: Almost stubborn commitment to not letting go of innovation, not letting go of investment and not letting go of our collaboration with retailers to serve the consumer even better in the future. Thank you.
Speaker Change: Our next question will come from Peter Grom of UBS. Please go ahead.
. . .
Peter Grom: Thanks, operator, good morning, Andre. So, I was hoping to get some more perspective on international market growth.
Speaker Change: You touched on the your focus work as being a 1% you outline the impact France is having Latin America up 6 despite challenges in Mexico. So this will be curious if you can unpack category growth in those regions versus maybe market share performance and then you outline some of the shifts in consumption that are happening in Europe in your response to Lauren's question. I'd be curious what you're seeing in terms of consumption across Latin America more broadly. Thanks.
Speaker Change: We're very pleased with the Latin America results, maybe to start their Peter.
Speaker Change: 6% organic sales growth is a great result with a very strong base, I think it was 17% in the base period.
Speaker Change: Brazil, growing 8%, Mexico, growing 6%, and that's with Mexico's consumers probably as volatile as the US consumer.
Speaker Change: We feel good about category growth in the region. We have Argentina now as an import market which I think stabilizes the region from an overall growth perspective.
Speaker Change: From a China perspective, the message hasn't changed. The market is still flat to down across our categories.
Speaker Change: But I do believe that again recovering China will take time and won't be a straight line. The message there hasn't changed.
Speaker Change: The rest of the world, again I won't have much more intelligence other than to say we saw growth rates slow from 3.5 to 2.5, structurally we believe that the world will return and our categories to 3 to 4% growth.
Speaker Change: And as I mentioned in response to Chris's question, we don't have a crystal ball, so the only way to deal with the uncertainty that comes with the current consumer growth rates is to focus the organization on the strategy and plan for a range of outcomes.
Speaker Change: Our next question will come from Bonnie Herzog of Goldman Sachs. Please go ahead.
Bonnie Herzog: All right, thank you. Good morning. I just had a quick question on guidance.
Bonnie Herzog: And then just thinking about that in the context of softer consumption trends, just wondering if there could be further risk there or maybe what gives you the confidence that things might accelerate a bit in Q4 versus Q3. Thanks.
Bonnie Herzog: and the current guide as I had in the prepared remarks has a wide range from 0.5 I think to… [inaudible]
Bonnie Herzog: 4.5 in the next quarter, which is indicative of the uncertainty we see from a consumer behavior standpoint.
Bonnie Herzog: We feel that consumption is now moving again in line with inventory, consumption is moving in line with shipment, so no inventory destabilization in the quarter.
Bonnie Herzog: But we also don't assume that that inventory that we lost in Q3 will come back because we believe it's an outcome of the consumer shifting into channels that are more inventory efficient. [inaudible]
Bonnie Herzog: So the guide for the quarter is white, we believe it appropriately reflects the range of outcomes we see, and appropriately has risk protection for that range. [inaudible]
Speaker Change: My next question will come from Mark Astrachan of Stifle. Please go ahead. Go ahead.
Speaker Change: Jeff Dixon, and Morning Everybody. I wanted to go back to your commentary, Andre, about the shifting consumer in terms of where they're purchasing. You called that club, you called that more mass channel, that I don't think that's.
That's especially new.
Speaker Change: Directionally new, meaning the consumer has been shifting to Walmart or Pasco or Club channels. In general, does that change the way the company approaches selling into those channels, you know, from a price pack?
Speaker Change: or Volly Inverse Price, Nick Stampoint. Has that evolved over the last couple of years, and how do you see it kind of changing from here, especially in the context of what you've called out more recently? Thank you.
Speaker Change: Morning, Mark. No, you're exactly right. The trend is not new. We've been seeing this shift into large box retailers online and club for a number of quarters and we've been talking about it.
Speaker Change: And so our portfolio, as you rightly say, is well positioned to play with the consumer moving and maybe accelerating to move a little bit over the past quarter into those retailers.
Speaker Change: Our brands are well positioned, our taxiles and price points are adequate as we get great support across the entire trade landscape. So we're not worried about it.
Speaker Change: in the drug channel because of the difficulties in the drug channel and that accelerates I think the move into some of the other channels we're talking about.
Speaker Change: and why we believe that inventory will likely not come back because as we see more business from those channels and those retailers, they tend to be more inventory efficient, which is really the only structural element where it's relevant.
Speaker Change: Our Brands are positioned well in all the channels and that's part of the job we have to make sure we're there wherever the consumer decides to go. [inaudible]
Speaker Change: Our next question will come from Andrea Teixeira of JP Morgan, please go ahead.
Speaker Change: Thank you, good morning. So Andrea, for the clarification on the 1.5 billion impact that you've coded from tariffs.
Speaker Change: Is that I'm assuming obviously that's an annualized impact and mostly related cases such as raw material sourcing from that 10% that you talked about exposure to China.
Speaker Change: and some of the exports of Canada that you alluded to. Is there any, like when we think about then, if that's correct, the real question that I have is that at the midpoint of that impact, say 1.25,
Speaker Change: Interproductivity to offset other inflationary costs in the past. So it does not seem hard to mitigate that from a value of also value of creative innovation that you have. So how we should be thinking more long term or medium term, the mitigation efforts that you're going to have, understandably not in the Q4 fiscal but going to the medium term. Thank you very much.
Speaker Change: Morning, Andrea. Yeah, the 1.5 billion before text is the impact that we are estimating based on what we know today.
Speaker Change: That means the tariff rates that have been announced and enacted both in the US and in all other markets in response to the US tariffs.
Speaker Change: Exactly as you say, that's about 3% of cost of goods sold, about 140 to 180 basis points margin impact.
Speaker Change: This is not an average discussion though, right? Because the impact is on certain skews on certain brands and certain category country combinations. So when we average this out across the globe, the numbers that you quote are correct.
Speaker Change: that we would have to take, that of what we believe we can deliver in productivity and other mitigating factors. So that's exactly the work that the teams are doing now.
Speaker Change: And that's why we keep all of the tools on the table. We will start with productivity. We will look at sourcing changes and formulation changes, which...
Speaker Change: Typically take longer. We will look at pricing with innovation and we will look at straight pricing. All of those elements are on the table and we're working through them right now, but it's important to understand this is an average global number. [inaudible]
Speaker Change: The number that you have by skew, by category, by brand, by market. Good.
Speaker Change: It's very different, and that's where the decision needs to be made, right? That's what the consumer will see.
Speaker Change: and that's where we need to make the interventions. But at an aggregate level, it's manageable.
Speaker Change: would just need to work through the details across the portfolio, which is exactly what the team is doing.
Speaker Change: The next question will come from the Olivia Conor of Raymond James. Please go ahead.
Olivia Tong: Great. Thanks. Good morning. My questions also around the the pretext pair of impacts, the one to one and a half billion, and if you could just compare contrast to the 16170 Q4, was there some forward buying or other factors? Yes.
Olivia Tong: that are resulting in a smaller impact in Q4 versus you're anticipated for your run rate. And then just following up on that.
Olivia Tong: One to know a little bit more in terms of a pricing plan to mitigate the tariff impact, because-
Olivia Tong: The categories that sound like their hardest hit, for example like Tissue Towel, [inaudible]
Olivia Tong: Our categories that have seen a more substantial deceleration and typically have significantly higher private label exposure and competition overall. So as you say, as the team do their work in terms of trying to figure out how to. [inaudible]
Olivia Tong: Go about pricing if you could just talk in terms of the specifics around categories, that would be great. Thank you.
Olivia Tong: Good morning, Olivia. The Q4 impact of 100 to 160 million BT is just one month. Because the way the terrorists slow, they are an inventoryable cost, so they flow through our variance holding policy, which means we really only have one month of impact within quarter four.
Olivia Tong: So then you take that times 12, you get straight to the 1.5 billion before text that we are quoting.
Speaker Change: Look, on your pricing plans, what you're describing is exactly the discussion we have on every pricing move.
Speaker Change: There's commodity effects, there's foreign exchange rate effects, now there's terrific effects. [inaudible]
Speaker Change: So, working through exactly what is the right plan, by brand, by market, what combination of pricing over what period of time is the right answer. That's a very complex exercise and it really can't be answered at a market or at a category level. [inaudible]
Speaker Change: So, let us do the work. And as we do that, it will be reflected in our guidance range. But this is not new to us. This is what we do. And generally, we are doing it well.
Speaker Change: Our next question will come from Robert Ottenstein, a Bevercore ISI. Please go ahead.
Great, thank you. A couple of follow-ups, first. First.
Speaker Change: So I'd like to understand a little bit, you know, the logic behind that given that it's a tough market and what gives you the confidence to get that price and is it in fact sort of strategic pricing that you need to be higher, you know, to get the, you know, the high-end consumer interest.
So that's first and then second.
Speaker Change: How they're thinking about their suppliers in that context, their supplier, supply chains, you know, are there any indication that they are, you know, looking to change, you know, who they're working with, given various people supply chains? And are they looking at private label differently? You had mentioned- [inaudible]
You know, is that because the consumer? [inaudible]
Speaker Change: For whatever reason, doesn't want private label because the brands are marketing so well and the value is so strong or are the retailers at least in your categories. [inaudible]
Speaker Change: Deamphasizing Private Label, and what's the logic behind that and maybe in that context touching on diapers. Thank you.
Good morning, Robert. [inaudible]
Speaker Change: And that's just congruent with a business model. You innovate, you price and you provide better value and better outcomes for the consumer and drive market growth.
Speaker Change: I won't speak for retailers, Robert, many of the aspects of the question you asked. I think a better ask of our retail partners.
Speaker Change: What I will tell you is that our vision of partnering with our retailers as we talked about supply chain 3.0 integrating our supply chains because we are closed in terms of...
Speaker Change: Manufacturing Location, Warehousing Locations, to their supply chains. I think it's an advantage that played out.
Speaker Change: And I don't expect that to change. I think we appreciate our retailous willingness to engage with us and build a better supply chain. And I think they appreciate our ability to provide supply chains that are stable, reliable, and cost-deficient.
and I think that that is the focus for us.
Speaker Change: I won't speak to their private labour strategies. I think we will see them articulate that and play it out. What our job is to provide the best possible branded offering in the store.
Speaker Change: which is why we continue to focus on investment innovation across both the product as well as go to market and supply chain.
Speaker Change: Our next question today will come from Kevin Grundy of BNP Paraba. Please go ahead.
Kevin, your line is live and may be muted.
Kevin Grundy: Rocky Mistakes, sorry about that. Andre, a question on enterprise markets here, which have slowed a bit. Can you just comment broadly? And I know some of this is China, we've talked about the Middle East before, but what was really sort of the key growth driver for the company now has slowed pretty precipitously. Can you comment on? Yes, please.
Kevin Grundy: Industry growth rates in key enterprise markets, how much of this is slowing, how much of this is industry specific versus how much of this might be more procure specific because we don't have a great deal of granularity on that. This is a great deal.
Kevin Grundy: and then sort of more forward-looking as we think about fiscal 26, what is the company's sort of expectation broadly speaking in terms of growth rates for enterprise markets? So any color there would be helpful. Thank you very much.
Morning, Kevin.
The
Kevin Grundy: And I feel good about our ability to continue to drive.
Kevin Grundy: Growth.
Kevin Grundy: At average portfolio rates are above from Europe enterprise markets.
Kevin Grundy: And then the last region Asia Middle East Africa within the portfolio or the biggest driver continues to be the middle East.
Kevin Grundy: But if you look at markets like India.
Kevin Grundy: We are profitable in India, driving mid single digit growth very nicely.
Kevin Grundy: Local production on the ground, we have R&D capability on the ground the market gets better every time, we look at it. So again, we feel very solid about growth opportunity there.
Kevin Grundy: But its enterprise markets. They are volatile by default, that's why we manage them as enterprise markets.
Kevin Grundy: And the same volatility we see at the moment in our focus markets for sure is to be expected and enterprise markets. So I won't give you a 26 guide.
Kevin Grundy: I will tell you the same thing I've mentioned before if there is any conclusion from the current visibility is it's going to be a wide range.
Speaker Change: Our next question today will come from Tom your thoughts or Wala of Jefferies. Please go ahead.
Tom: Hey, guys I guess a couple of.
Speaker Change: Couple of things on so much conversation about macro.
Speaker Change: If I recall, the innovation pipeline with so much heavier in the back half than the.
Speaker Change: The front half of this year. So is with everything that's going on in <unk> sort of thing is it slowing your.
Speaker Change: <unk>.
Speaker Change: Innovation rollout your expectations from contribution of those innovations I suppose I would say that in the context of sometimes when the consumer is under pressure they tend to not want to try new things and I'm just wondering if that sort of changes the calculus on your on your plans for Rollouts.
Speaker Change: Good morning.
Speaker Change: I don't think it does.
Speaker Change: As as we said we are.
Speaker Change: We are committed to continue to drive innovation into all categories.
Speaker Change: And.
Speaker Change: Plus we continue to believe it's the most important driver of category growth and therefore getting.
Speaker Change: That incremental consumption, we've highlighted as a big opportunity in focused markets, both Europe and in North America.
Speaker Change:
Speaker Change: I think the the trick here is simplicity of the proposition.
Speaker Change: What you don't see US do generally has tried to drive skus for news and make the category more complex.
Speaker Change: We're trying to do with restage propositions.
Speaker Change: And be very clear on what the incremental benefit an incremental value for the consumers supported by our retail partners. If we do that right. It is category accretive.
Speaker Change: And again, you heard US talk many times about SKU complexity and simplifying the shopping experience for consumers.
Speaker Change: And you are right now is the time more than ever to go down that path and work with our retail partners to ensure that all the noise that is irrelevant for the consumer as expressed by being a small fraction of the sales while being a bigger part of the shelf all that noise needs to go away. So the consumer can more clearly see the benefits.
Speaker Change: Of the strong innovation that some of the biggest brands are bringing to market.
Speaker Change: Our next question will come from Robert Moskow of TD Cowen. Please go ahead.
Robert Moskow: Hi, Thanks.
Speaker Change: Andre I wanted a little more clarity on the commodity inflation guidance.
Speaker Change: The same at $200 million is that including the tariff impact or not I guess, that's the first question and then also we've noticed that resin prices are down a lot since the start of the year probably in the mid teens.
Speaker Change: Related to crude oil is it possible as you head into fiscal 'twenty six that there actually is this crude oil benefit that flows through and helps reduce the.
Speaker Change: The cost of the tariffs that hit your P&L.
Speaker Change: Okay.
Robert Moskow: Good morning, Robert the commodity inflation number that is quoted the $200 million is excluding <unk>.
Robert Moskow: The tariff impact for clarity, we kept it separate so we see 200 million impact from commodity inflation and one two sorry, 100, 100, <unk> hundred 60 impact gross impact from tariffs.
Robert Moskow: And that impact for next year is 1% to one 5 million 1 billion BT again gross impact of tariffs.
Robert Moskow: The commodity impact for next year I won't comment on we always forecast that's parts of whatever the spot is at that point in time, when we look our plans for next year will be underlying guidance.
Robert Moskow: And if anything I'll give you the same answer the range will be wide.
Robert Moskow: Okay.
Speaker Change: Your final question will come from Cory <unk> of Piper Sandler. Please go ahead.
Cory <unk>: Hi, Good morning. Thank you for taking the question just wanted to touch a little bit on how you feel about the broader agility of your supply chain and how quickly and easily could you shift things around to try and mitigate the impacts here and Martin near term and then also can you just touch a little bit on what your conversations with them.
Speaker Change: Suppliers and also maybe the retail partners had been on the potential to kind of help us solar but those tariff costs.
Speaker Change: Contact center would be great. Thank you.
Speaker Change: Good morning.
Speaker Change: The.
Speaker Change: The first part of the answer I'll give you is we are I.
Speaker Change: I think in the favorable position that the majority of our supply chain is close to our.
Speaker Change: Consumption.
Speaker Change: We've made those investments very deliberately over the last seven eight years, we invested more than $10 billion just in the U S to locate production close to the U S consumer.
Speaker Change: Created jobs.
Speaker Change: And I think we'll see the benefit of that.
Speaker Change: Which was enabled by a more competitive tax environment.
Speaker Change: In the U S. So we're starting from a good place.
Speaker Change: Supply chain changes require certainty.
Speaker Change: We don't want to.
Speaker Change: Make short term sourcing changes or short term formulation changes unless we know what the environment is we're dealing with.
Speaker Change: So we're really waiting for certainty at this point in time for us to make decisions because those decisions are generally Ada have lead time of multiple months sometimes years.
Speaker Change: And be reversing them have similar lead times, so any knee jerk reaction doesn't make a whole lot of sense.
Speaker Change: On our conversations with retail partners and suppliers I won't comment they are ongoing in any environment and again, we had a lot of volatility over the last six seven years.
Speaker Change: So certainly the communication lines are always open.
Speaker Change: And again, you will see our plan develop over the next few months as we get closer to the year and hopefully a bit more visibility.
Speaker Change: That concludes the call for today.
Speaker Change: Thank you for your time, I hope you see and feel our commitment and our conviction that the business model of the strategy across.
Speaker Change: The portfolio, we've chosen the focus on superiority the focus on productivity the strength of our organization as of both committed and convinced that we will be able to deliver on algorithm over a two to three year period, while maintaining investment in the business for growth with our retail partners.
Speaker Change: And the benefit of consumers in the near term and the midterm that conviction will not change.
Speaker Change: And we will manage our business in the short term and the midterm along those lines. Thank you for your time today and will be available for any other questions you might have have a great day.
Speaker Change: That concludes today's conference. Thank you for your participation.
Speaker Change: Now disconnect have a great day.