Procter & Gamble Q3 2026 Earnings Call Transcript

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DATE

Friday, April 24, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Financial Officer — Andre Schulten
• Senior Vice President, Investor Relations — John Chevalier
• Senior Vice President, Investor Relations — Kerry Cohen

TAKEAWAYS

• Organic Sales Growth -- Up more than 3%, with volume increasing two percentage points, pricing up one point, and mix flat.
• Geographic Performance -- North America organic sales rose 4% with volume up three points; Europe was up 2% led by a 6% increase in enterprise markets; Greater China grew 3%.
• Category Performance -- Skin and Personal Care grew high single digits; Hair Care, Family Care, and Home Care grew mid-single digits; several other major categories grew low single digits.
• Market Share -- 26 of top 50 category-country pairs held or grew share; global exit market share remained in line with prior year.
• Core EPS -- $1.59, up 3%; currency-neutral core EPS was flat.
• Margins -- Gross margin decreased 100 basis points; core operating margin fell 80 basis points; productivity improvement contributed 330 basis points but was offset by reinvestment and higher energy costs.
• Cash Returns -- $3.2 billion returned to shareholders, including $2.5 billion in dividends and over $600 million in share repurchases.
• Dividend Increase -- Board approved a 3% dividend increase, marking the 70th consecutive annual rise and 136th year of dividend payment.
• Guidance Maintained -- Fiscal 2026 outlook for organic sales growth remains at in line to 4%; core EPS guidance is in line to 4% growth, expected at the lower end of the range due to cost headwinds.
• Key Headwinds -- Expected $150 million after-tax cost headwind for fiscal year from commodity inflation, feedstock, and logistics disruptions due to Middle East conflict, primarily affecting the fourth quarter.
• Productivity -- Adjusted free cash flow productivity was 82% this quarter; full-year forecast is 85%-90%, with increased capital spending and restructuring costs factored in.
• Return to Shareholders (FY 2026) -- Plan to pay $10 billion in dividends and repurchase $5 billion in common stock for a total of ~$15 billion cash return.
• Restructuring Progress -- Headcount reduction is on track to deliver a 15% non-manufacturing decrease over two years, with a significant portion completed by year-end.
• Innovation Highlights -- New product launches, such as Fairy Skip the Soak and Mr. Clean innovations, contributed to category growth and brand penetration increases.
• Supply Chain Capabilities -- Supply Chain 3.0 automation, data analytics, and integration positioned to mitigate volatility and support ongoing margin and supply challenges.

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RISKS

• Schulten stated there is a "$1 billion after tax" headwind driven by commodity and logistics costs, with the majority impacting the fourth quarter.
• Management expects "full-year EPS results to be toward the lower end of the guidance range" due to increased cost pressures and geopolitical disruptions.
• Guidance includes a $500 million pre-tax tariff headwind for the year, not assuming any material recovery.
• Core operating and gross margins declined compared to prior year, attributed to reinvestment and external cost challenges.

SUMMARY

Procter & Gamble (NYSE:PG) management reported broad-based organic sales growth, with each major category and all seven regions posting gains, yet flagged rising external cost pressures tied to global events. Disciplined execution on innovation and productivity initiatives, including successful new product launches and continued technology-driven supply chain improvements, underpinned results despite headwinds. Shareholder returns through both dividends and repurchases were confirmed, and management explicitly reaffirmed focus on reinvesting in momentum brands even as input and logistics costs remain volatile.

• The outlook anticipates fourth-quarter organic sales will be "somewhat lower than third quarter" due to inventory timing effects and additional cost headwinds.
• Schulten highlighted, "Almost all of these increased costs will be in the fiscal fourth quarter," referencing near-term earnings pressure from commodity and logistics disruption.
• Management specified Baby Care share gains in five of seven regions, with the U.S. requiring additional intervention and reinvestment efforts.
• China market growth remains negative across most channels except online, but SK-II and Baby Care achieved double-digit gains driven by innovation and targeted execution.
• Supply chain resiliency measures, such as rapid reformulation and supplier diversification, are being deployed to manage both risk of shortage and cost inflation across key geographies.
• Schulten emphasized priority on "protect[ing]" demand creation investments and maintaining brand support, even at the expense of short-term margin dilution.
• Initiatives in data-driven marketing and automation—specifically via "Supply Chain 3.0"—are advancing, with accelerated rollouts underway to pull forward long-term productivity gains.
• Regarding tariffs, recoverability of $150 million after-tax Section 301 tariffs remains uncertain, contingent on U.S. administrative developments.

INDUSTRY GLOSSARY

• Enterprise Markets: Company-defined emerging or developing markets grouped geographically, often including Latin America, Asia Pacific, Middle East, and Africa, tracked separately from focus (developed) markets.
• Adjusted Free Cash Flow Productivity: Ratio of free cash flow to net earnings, adjusted for specific company-defined items, used as a measure of operational efficiency and cash conversion.
• Trade Inventory Destocking: Reduction of inventory levels held by distribution or retail partners, which can significantly influence reported quarterly sales and volume trends.
• Supply Chain 3.0: The Procter & Gamble Company's ongoing supply chain transformation integrating automation, digitization, and advanced analytics to drive end-to-end efficiency and resilience.
• Section 301 Tariff: U.S. tariffs imposed on imported goods, notably from China, under Section 301 of the Trade Act of 1974, with recoverability dependent on administrative action.

Full Conference Call Transcript

Andre Schulten: Good morning, everyone. Joining me on the call today are John Chevalier and Kerry Cohen, our Senior Vice Presidents of Investor Relations. We will start with an overview of results for the quarter and then discuss our progress on near-term business interventions and longer-term transformation efforts. I will close with guidance for fiscal 2026, and then we will take your questions. As we expected, we saw solid acceleration in top-line results in our fiscal third quarter. Bottom-line results reflect the strength of the top-line progress with partial offsets from incremental investments in the business and energy cost impacts from the conflict in the Middle East.

Taken together, we remain on track to deliver within our guidance ranges for the fiscal year. Organic sales increased more than 3% versus the prior year. Volume increased two points, pricing was up one point, and mix was flat for the quarter. We delivered broad-based growth across the business, with each of our 10 product categories growing organic sales. Skin and Personal Care grew organic sales high single digits. Hair Care, Family Care, and Home Care grew mid-singles. Personal Health Care, Oral Care, Fabric Care, Baby Care, Feminine Care, and Grooming each grew low single digits. Growth was also broad-based geographically, with each of our seven regions growing organic sales. Focus markets were up 3%.

Organic sales in North America grew 4%. Volume was up three points, driven by improved consumption and trade inventory dynamics. We saw a benefit from base period trade inventory destocking and a modest help from a current period trade inventory increase late in the quarter driven by Easter timing. Price/mix added a point of growth. The Europe region was up 2%, led by enterprise markets being up 6% and modest growth in focus markets, led by the U.K., Italy, and Spain. Greater China organic sales grew 3%. We continued growth in what remains a challenging consumer environment; Pampers and SK-II led the growth, each up double digits. Enterprise markets in aggregate grew 5% for the quarter.

Latin America organic sales were up 5%, with Mexico and Brazil each up high single digits. Organic sales in the Asia Pacific, Middle East, and Africa enterprise region were up 4%. Global exit market share improved to in line with prior year with positive trends through the quarter. Twenty-six of our top 50 category-country combinations held or grew share for the quarter. On the bottom line, core earnings per share came in at $1.59, up 3% versus prior year. On a currency-neutral basis, core EPS was in line with prior year. Gross margin was down 100 basis points, and core operating margin was down 80 basis points versus prior year.

Strong productivity improvement of 330 basis points was offset by healthy reinvestment in innovation and demand creation. Currency-neutral core operating margin was down 70 basis points. Adjusted free cash flow productivity was 82%, and we returned $3.2 billion of cash to shareowners in the quarter: $2.5 billion in dividends and over $600 million in share repurchases. Earlier this month, we announced a 3% increase in our dividend, continuing our commitment to return cash to shareowners. This marks the 70th consecutive annual dividend increase and the 136th consecutive year The Procter & Gamble Company has paid a dividend. In summary, this was a solid quarter of progress—positive sales and share trends and earnings growth in a difficult environment.

Geopolitical dynamics have thrown new challenges in front of us, but we will continue to fully support the business to maintain the momentum that we are creating. As we move forward, we remain committed to the integrated growth strategy: a portfolio of daily use products and categories where performance matters. In these performance-driven categories, we must deliver irresistibly superior products across the product itself, the package, the brand communication, retail execution, and value. We will continue to drive productivity with multi-year visibility to fund innovation and demand creation and to mitigate cost headwinds. Constructive disruption is key to staying ahead of, and to creating, emerging trends and opportunities in our fast-changing industry.

Finally, we have an organization that is fully engaged, enabled, and excited to serve consumers and to win in the marketplace. The Procter & Gamble Company's point of difference—our competitive advantage—comes from outstanding integrated execution of these strategies across all activity systems in the company and from anticipating what capabilities are needed next. While the core strategy remains constant, on last quarter's call and at the CAGNY conference, we outlined three major changes in the landscape around us. Media fragmentation and changing consumer media preferences are affecting how consumers collect information about our categories, including platforms like social media, retail media, and AI portals. The retail landscape is changing—more concentration, but also brand proliferation.

Retailers are becoming media platforms, and media platforms are becoming retailers. Third is inflation across food, energy, health care, and many other areas of spending, which has taken a toll on consumers and how they assess value. Recent geopolitical events have elevated this to a new level of concern. In short, the consumer path to purchase is changing every day, and we expect an even more intense pace of change in the next three to five years. The interventions and investments we are making in The Procter & Gamble Company capabilities to adapt to these changes are beginning to bear fruit. Strong innovation supported by sharper consumer communication and retail execution—a few examples.

Building on the success of Dawn Powerwash in the U.S., Fairy Skip the Soak in the U.K. is a great example of deep consumer insight driving innovation. Consumer research showed us that more than 70% of U.K. consumers soak dishes before washing. With this insight in mind, we created the Fairy Skip the Soak idea, which instantly and intuitively helps consumers understand what the product is and what it is for—integrated superiority across all vectors, where the product name inspires the package, in-store execution, and communication, all supported by superior performance that delivers on the promise. Skip the Soak drove Fairy brand household penetration to 61%, up five points in its first year. Mr.

Clean continues to innovate on its core proposition, solving more cleaning jobs with new additions to the portfolio core and more. The brand has launched new innovations on the Magic Eraser platform that improve longevity with a denser foam and a wider micro-scrubbing structure that now lasts 2x longer. We restaged the packaging to use room- and mess-focused names that clearly signal where to use the eraser. At the same time, we launched Mr. Clean Shower and Tub Scrubber to address consumers' number-one most-hated cleaning chore: shower and tub. Mr.

Clean Shower and Tub Scrubber delivers a quicker, easier, and deeper clean with the power of the Magic Eraser, a sturdy grip handle, built-in squeegee, and a pivoting head for hard-to-reach areas. The results: Mr. Clean is winning consumers and driving category growth, delivering 18x its fair share of the bath cleaning category growth since launch. In Germany, Pantene identified an opportunity to improve brand and product superiority awareness by capitalizing on media landscape shifts. The team increased investments in social media and influencer partnerships, including top German beauty opinion leaders, hair experts, and brand events, including talk-worthy local events like Oktoberfest and Berlin Fashion Week.

The impact: earned influencer posts grew 4x, and total reach tripled despite a 20% reduction in media spend. Content value share in Germany is up 60 basis points versus a year ago and accelerating. The other examples we have discussed recently also continue to deliver strong results, including Greater China Baby Care, Mexico Fabric Enhancers, Brazil Hair Care, and U.S. Personal Care. Finally, Tide-boosted liquid detergent in the U.S. continues to deliver strong results. Initial weeks in the Tide EVO launch are on track with our high expectations.

While we work to improve our near-term results, we are also making progress on a longer-term reinvention of The Procter & Gamble Company capabilities—the next phase of constructive disruption that will create and extend our competitive advantages in each element of our strategy. The way to break through consistently is to build the strongest brands in the industry. The Procter & Gamble Company has the unique strengths and capabilities to redefine brand building to deliver consumer relevance and superiority. First, we are leveraging our large iconic brands with huge consumer bases and all the data we gather.

We are now scaling the integrated data platforms and the technologies that will enhance our teams' ability to mine this data for insights that lead to new product innovations, brand ideas, performance claims, and marketing campaigns across all relevant consumer platforms. Next, we are driving our unique set of innovation capabilities—substrate technology, formula chemistry, devices, and biology—to deliver breakthrough solutions in every part of the business. Third, we have tremendous supply chain capability. Supply Chain 3.0 is driving a more complete system connection from purchase signal to our production planning and material ordering to ensure consumers find the product they want each time they shop. We know how to automate, digitize, and autonomize our operations.

More importantly, we have qualified a financial framework to generate strong returns on these investments. Our innovation and supply capabilities are key enablers to win in the volatile market we operate in today. Connecting R&D, supply chain, and procurement allows us to adjust sourcing, optimize formulations, and qualify alternative supply faster and more effectively than ever done before. It took years to build these underlying platforms and capabilities, and we are now in full scaling mode across the company. The next step is to connect the dots to integrate the pieces. We will close the loop, and we believe this will create a new S-curve for growth and value creation centered around our consumers.

We are confident in the short-term progress we are making, and we are excited about the mid- to long-term as we leverage our strengths and unique capabilities to set us apart from the industry. Moving on to guidance. As you saw in our press release this morning, we are maintaining our fiscal 2026 guidance ranges across organic sales growth, core EPS, and adjusted free cash flow productivity. However, where we will land within those ranges has become more uncertain given the geopolitical dynamics in the Middle East. We continue to expect organic sales growth of in line to 4%. We are seeing progress in most categories and regions, as you can see in this quarter's results.

Underlying global market growth for our portfolio footprint is around 2% on a value basis, with a positive trend over the last two months. However, it is unclear how much higher gas and energy costs will impact near-term consumer spending in our categories. Also, as I mentioned earlier, the trade inventory increase we saw in March was driven by Easter timing and likely some protection against potential price increases or supply chain disruptions resulting from the conflict in the Middle East. We expect this to result in fourth-quarter organic sales somewhat lower than third quarter. As a reminder, our top-line guidance includes a roughly 30 to 50 basis-point headwind from product and market exits as part of our restructuring work.

Our bottom-line guidance is for core EPS growth in line to 4% versus prior year. This equates to a range of €6.83 to €7.09 per share. This guidance includes a foreign exchange tailwind of approximately $200 million after tax, unchanged from our prior outlook. We now expect a headwind of approximately $150 million after tax for the fiscal year from a combination of commodity-linked cost inflation, feedstock exposures, and logistics disruptions resulting from the conflict in the Middle East. Almost all of these increased costs will be in the fiscal fourth quarter.

Our teams are doing a tremendous job to protect supply continuity and minimize cost impacts—much of this work, such as rapid product reformulation and supplier diversification, enabled by the advanced data tools and capabilities we discussed earlier. With the timing of these cost impacts, there is little opportunity to create short-term offsets within cost of goods sold. Likewise, we will protect our demand creation investments in the business to support our new innovation and maintain positive momentum. In fact, we have approved incremental investments in several businesses in the last month. Given all the above, we now expect full-year EPS results to be toward the lower end of the guidance range.

Our fiscal 2026 outlook continues to call for approximately $500 million before tax in higher costs from tariffs. Below the operating line, we continue to expect modestly higher interest expense versus last fiscal year and a core effective tax rate in the range of 20% to 21% for fiscal 2026—combined, a $250 million after-tax headwind to earnings growth. We continue to forecast adjusted free cash flow productivity in the range of 85% to 90% for the year. This includes an increase in capital spending as we add capacity in several categories and as we incur the cash costs from the restructuring work.

We expect to pay around $10 billion in dividends and to repurchase approximately $5 billion of common stock—combined, a plan to return roughly $15 billion of cash to shareowners in fiscal 2026. Our outlook is based on current market growth rates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity or other cost increases, further geopolitical disruptions, major supply chain disruptions, or store closures are not anticipated within the guidance range. We will not provide guidance for fiscal 2027 until our next call in July. However, we understand investor concern about potential cost and supply impact from the Middle East conflict.

For perspective, the annual cost impact of Brent crude at around $100 per barrel is roughly $1.3 billion before tax, or $1 billion after tax, versus a pre-conflict oil price in the mid-sixties. Again, this goes beyond direct commodity cost to include other upstream and downstream cost impacts that would hit our P&L. Regarding supply impacts, we are hopeful the full flow of materials will resume in the coming weeks. We continue to work closely with our suppliers and contractors to identify potential short-term risks. So far, our business continuity plans continue to perform well despite some force majeure declarations by our direct suppliers or by their upstream suppliers.

No company will be immune to these effects, but this is an example of where our capabilities help us buffer the impacts on our business. Our business teams have been developing multiple contingency plans to mitigate potential cost and supply disruptions. Underpinning each of these options is a commitment to maintain support for our brands and superior value for our consumers. We remain willing to manage some short-term pressure on the bottom line to come out of this period with stronger brands and business momentum on the other side. This has proven to be the right path in the past, and we are confident that it is now.

In summary, we continue to believe the best path to sustainable, balanced growth is to double down on the strategy—stronger integrated execution to delight consumers with superior products at superior value. Challenging markets like the ones we compete in today are an opportunity for The Procter & Gamble Company to step out from the pack and to lead. We have the brands, the tools, the capabilities, and most importantly the people required to win. We are confident in the short-term progress we are making. It will not be a straight line, but we are moving in the right direction. We are building momentum, and we are excited about the long-term opportunities ahead.

With that, we are happy to take your questions.

Operator: We will now open the call for questions.

Operator: If you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, press star followed by two. Your first question comes from the line of Steve Powers of Deutsche Bank. Please go ahead.

Steve Powers: Thank you very much. Good morning, everybody. Andre, you covered a lot of ground in your prepared remarks. As you look through the puts and takes and timing nuances in the third quarter, how do you assess underlying progress on organic growth, and to what extent are you confident it can be further progressed into the fourth quarter and into 2027? I ask that in the context of the $1 billion after-tax cost headwinds that you mentioned have now built for the year ahead, as well as the accelerated investments you have set in motion that I presume are also likely to carry forward.

As you approach fiscal 2027 planning with all that in mind, do you think productivity alone will be relied upon as offense to those factors, or do you feel the building advantages and momentum you are creating will allow for potential use of pockets of incremental pricing should the need arise? Thank you.

Andre Schulten: Steve, thanks for the question. I have a great amount of confidence in the progress we are making on the growth side. The breadth of the progress is visible across regions and across categories. If you drill a level deeper and look at the individual plans that we are executing across the brands that are responding the fastest and the best, they show that our hypothesis underlying our business model is working. When we innovate—when we deliver a better solution for our consumers and our categories—they respond. The prime example for me is the Tide liquid intervention we made.

It is a huge business in the U.S., and the formula upgrade we delivered was the biggest upgrade we have made in 25 years. Just showing that performance improvement to the consumer at the same price, leading to mid-teens growth on a business like that, is impressive. We are seeing the same in the Beauty category: SK-II growing 18%, continuing to invest in the brand proposition; the innovation on the super-premium side with different forms is gaining momentum—just great execution. The other examples we gave are just solidifying that same model. I feel very strong about the progress because I also see the amount of brand-country combinations that is still to come will only increase the momentum.

I feel very good about the diligence the team is applying—really understanding what is the intervention we need to make across product, package, communication, go-to-market, and/or price to give the consumer the value that they will respond to. I feel very good about our ability to create excitement with the consumer when we innovate into new areas. The confidence in that model comes with conviction that we want to continue to invest behind it. The noise from the commodity exposure is significant—as you know, $1 billion after tax is nothing to sneeze at from a headwind standpoint—and we have a lot of work to do to work through the supply chain side and the cost side.

You have seen us excel in that space the last time when we had to do this coming out of COVID with the supply chain crisis. I think the team even further sharpened their skills in reformulation. We further diversified our supply base. We further diversified our flexibility on our formulations. We further sharpened our understanding of what are short-term productivity levers that we can pull. Honestly, there is a lot of room in our P&L to drive short-term productivity, and that would be the first place to go. Will it be sufficient to offset the full $1 billion after tax? Likely not.

With that, we continue to innovate, and selective pricing with innovation—where the consumer tells us their interest is high and their willingness to pay for better performance is there—will be the other part of the offset that we are driving. We are building those plans, and I am confident it will leave us in a reasonable place from an earnings growth standpoint while not jeopardizing the investment in sustained organic sales growth and share growth, which we are delighted to see turning this quarter.

Operator: Your next question will come from the line of Dara Mohsenian of Morgan Stanley. Please go ahead.

Dara Mohsenian: Just two follow-ups on Steve's question. First, can you discuss if you can seize any advantage on relative sales performance versus competitors as you look at the post–Iran conflict situation? From a supply chain or sourcing standpoint, is that something you think can be significant, or is it more modest in nature? Obviously, it is a fluid situation, but any thoughts there would be helpful. Second, you mentioned progress in a lot of areas on the growth side—certain brands with innovations you put in place—and spending behind the business in Q4.

On the first part of the question, given some potential competitive advantage post the Iran conflict, are you comfortable that you are back to organic sales growth outperformance versus your categories going forward as we look beyond fiscal Q4? Do you have visibility around that? Your thoughts around the potential timing of broader outperformance across the portfolio versus some of the areas where your progress already would be helpful. Thanks.

Andre Schulten: Thanks, Dara. Good morning. The supply chain side is too early to assess, but if history is any indicator for what is to come, our supply chains are generally resilient. We have flexibility and the ability, as I said, to reformulate, and our retail partners tend to lean on us to be their reliable partner in these times. We have managed not to let them down. We have seen other players struggle—especially if it is long supply chains, especially if it is heavily contract-manufactured supply chains. So, again, if history is any indication of what is to come, I feel very good about our position.

I have even more confidence—if that is possible—in our supply chain team, procurement team, and R&D teams, who are just on top of every single element of this every day. Outperformance versus the market is absolutely what we want to deliver. We did it in quarter three. We want to do it in more quarters. Will it be every quarter? I do not know—there are many drivers—but I feel that we are getting to a point where there is enough mass in the interventions we have made. We have hit enough critical components of the portfolio with the right innovation and the right interventions across the vectors that we will see continuous progress every quarter.

Again, can I promise that every quarter will outperform the market? No. But I am more confident than I have been in a long time that we will go exactly in that direction.

Operator: Your next question comes from the line of Lauren Lieberman of Barclays. Please go ahead.

Lauren Lieberman: Great, thanks so much. I wanted to check in on China. China was up 3% this quarter. Can you give us a sense for how the market performed in your categories? You also called out the tremendous acceleration in SK-II. Can you talk a little bit about what you are seeing in the beauty market in China in particular? Thanks.

Andre Schulten: Good morning, Lauren. China delivered 3% in the quarter, so last three quarters were 5%, 3%, 3%—very good progress. The fundamental reinvention of the China model all the way from go-to-market, portfolio, communication model, innovation model is continuing to pay dividends. The market is still difficult. Consumer confidence is still low and below a normal equilibrium. Market growth is still negative across most channels, and the only growth you see is online and in Douyin. So the market context is still the same. The positive side of China is the consumer is very discerning and very engaged in our categories. When we deliver true superiority, they are willing to go there. That is what you see in SK-II.

SK-II was up 18% in total; I think China was up 13% in the quarter. China travel retail was up significantly. When the consumer sees excitement and value—something they enjoy—they will go there and pay the premium. The same is true in Baby Care—I think 19% growth in the quarter—for the exact same reason: best-in-class consumer understanding, product performance, and innovation in line with that, with a great communication model, gives us growth in one of the most difficult categories. I see great visibility to driving that model across more categories and more mature thinking around the channel approach we take between online, Douyin, and brick-and-mortar.

I see a lot of upside in the China market because of that maturing thinking—strategy and execution. But again, it is China—there is a lot of volatility to be expected, but I feel very good about where it is headed.

Operator: Your next question will come from the line of Peter Grom with UBS. Please go ahead.

Peter Grom: Yes, thank you, and good morning, everyone. I hope you are doing well. Andre, I know we are not getting guidance for 2027 today, but in your response to Steve's question, you touched on productivity and pricing with innovation as offsets to inflation and that it would put you in a reasonable place from an earnings growth standpoint. I do not know if I am reading too much into this, but just to clarify, despite these headwinds and a commitment to invest in the business, do you still see a path to earnings growth next year based on where things stand today? Thanks.

Andre Schulten: Thanks, Peter. Look, I am very happy that I do not have to give guidance today, because what do we know the world looks like three months from now? With what we know today—with the $1 billion headwind and with the assumption that we can manage through the supply side of things well—we will do everything we can to do exactly what you are describing. But it is a work in progress: on the macro side; on pushing the productivity lever as hard as we can; and on a lot of tough choices that we can make within our P&L.

The one thing we will not compromise on is the investment in the parts of the business that are showing momentum. I will not give you any more detail than that, but we reassured the team, and the work that is happening right now has the sole objective to deliver exactly what you are describing—earnings growth even in light of these challenges—without sacrificing reinvestment in the business and without jeopardizing the momentum we are building.

Operator: Your next question will come from the line of Peter Galbo with Bank of America. Please go ahead.

Peter Galbo: Good morning, Andre. Thanks for the question. You were very deliberate in your comments about increased investments across several country-product combinations over the last month. We have heard a little bit about Tide-boosted in the U.S. and SK-II in China. Can you give us a few more examples of where the incremental investments are really going from a country-product combination standpoint as we start to contemplate Q4 and into 2027? Thanks very much.

Andre Schulten: You will understand I will not give away where we are going in terms of the innovation, investment, and strengthening. But it is the areas you would point out as opportunities. In Baby Care in the U.S., we are growing share at a global level, but the U.S. is not performing where we want it, and that requires intervention. The plan is extremely strong; the conviction of the team and our conviction is very high; and we will continue to drive interventions and innovation in that space. The momentum that the team is building in Beauty Care is fantastic to see.

The number of ideas to further build that momentum gives me high confidence to give them the flexibility to continue to invest with the innovation and commercial ideas they have. In Fabric Care, we just launched Tide EVO—very strong execution in market; retail support is outstanding—so it is an area of significant upside and reason to believe that we can accelerate. Broadly, we have a bigger and bigger share of the portfolio where we either have interventions already working or a very clear plan in place with conviction that investment will pay out and deliver—and that is what we will execute over time.

Operator: Your next question will come from the line of Chris Carey with Wells Fargo Securities. Please go ahead.

Chris Carey: Hi, good morning, Andre. I wanted to ask about pricing power and whether you think that this is different for the consumer staples industry and, more specifically, for The Procter & Gamble Company. You mentioned there was potentially some front-loading of inventory levels in the quarter as retailers potentially prepared for new pricing for inflation. That implies that retailers are aware that incremental pricing is a possibility for this new round of inflation. I field a lot of questions around consumer staples companies, including The Procter & Gamble Company, potentially losing the concept of pricing power into new inflationary cycles with so much inflation over the past five to six years.

Can you give some thoughts on pricing and whether you think pricing as a concept is different for the sector or for The Procter & Gamble Company than it has been historically? And then as a follow-up, you have mentioned in recent earnings calls that competitive activity has heated up. Now that inflation is moving higher, are you seeing competitive activity start to ease as competition needs to become a bit more rational given cost structures? Thanks so much.

Andre Schulten: Thanks, Chris. There is a natural tension in these situations. You have broad macro cost headwinds which are hitting everyone in the industry, which generally demand pricing. Typically, when you see these headwinds, the entire industry will move up in terms of pricing. On the other side, the consumer has been hit with cumulative inflation beyond anything seen in recent history. The way to square that in our mind is innovation. Consumers respond well if we give them a truly better proposition in the categories we are in because they see there is upside. There is still upside in many of our products to make them better, deliver a better experience, and delight the consumer.

If we do that and take a little bit of pricing with it, consumers respond. The other reason why that works is it generally comes with a choice for the consumer because we will not price across the entire portfolio in a straight line. We give the consumer choice—either pick the innovation with a bit of pricing and the promise of better performance, or stick with what they know. We have a very well-developed vertical portfolio, both from a brand-tiering standpoint and from a price-point standpoint. I do not think we have lost pricing power. Pricing power has to be earned, and the way to earn it is to combine pricing with a truly delightful experience for the consumer.

If we do that—and we are honest with ourselves, instead of just assuming we can take a straight 5% price increase across everything—I think it will work. That is the job at hand for the team. Luckily, we are in categories where that generally works because these products are used on a daily basis, and consumers know whether they are delighted or not, and whether the product they just bought is better than the one they had before—and therefore worth the price. On the competitive side, it is too early to say. This is just a few weeks, and everybody is still grappling with what reality we are looking at.

You would expect some pullback, hopefully, in terms of promotion activity, but it is too early to observe. The data we have is still relatively stable. Promotion activity in Europe and the U.S.—the two indicators with the closest read—are slightly increasing back to pre-COVID levels. With the data read that we have, nothing has changed yet. We will see where this goes.

Operator: Your next question will come from the line of Robert Ottenstein of Evercore. Please go ahead.

Robert Ottenstein: Great. First, a follow-up: Can you disaggregate the volume number in the quarter for the Easter impact, the inventory drawdown last year, and the SKU rationalization that you were planning so we have a better sense of where volumes are globally? And then, perhaps building on that, can you give us an update on the restructuring program that you announced in June in terms of headcount reorganization and rebalancing some of the functions, the people, and responsibilities? Thank you.

Andre Schulten: Good morning, Robert. I will keep it simple. The pull-forward from Q4 into Q3 is about a point. We would have rounded to 3% organic sales growth instead of having a strong 3%. The underlying growth in my mind would have been about 3% (rounding up). With the pull-forward, we had a strong 3%. The net impact was about one point of volume pull-forward from Q4 into Q3. The restructuring program is very well on track. Multiple components: we have the portfolio part of the restructuring, the go-to-market changes in Bangladesh and Pakistan, and the portfolio choices across Asia Pacific—all being executed and slightly ahead of program objectives.

The headcount reduction is being executed in line with trajectory; we are on track to deliver a 15% non-manufacturing headcount reduction over two years, with a significant portion delivered by the end of this fiscal year. On the organization programs, our objective is to enable our organization to be closer to the consumer and more empowered as the next phase of organization design. We want smaller teams that are empowered to make decisions, that have the data to make those decisions without a lot of legwork, and that are freed of internal work processes. The technology bundle is being rolled out now. Toolbox number one—data access, data analytics, reporting capability—is rolling out.

Toolbox number two—how we enable those teams to be better at consumer-facing work (concept ideation, content creation, pushing that content across all platforms, measuring it, reworking it)—is being scaled as we speak. Toolbox number three—the whole innovation part (molecular discovery suite, perfume discovery, digital twins to qualify innovation)—is already well in place. The fourth component is automation: we talked about unattended shifting; we now have those programs rolled out across nine categories. The feedback from the plant organization to skip the night shift is great. We are upskilling those people to deliver higher-order tasks in the factory. That is working, and we have multiple automation programs qualified and rolling out.

So, consistent progress on the organization design side and on the technology and data side underpinning that progress.

Operator: Your next question comes from the line of Kevin Grundy with BNP Paribas. Please go ahead.

Kevin Grundy: Good morning, and congrats on the progress in the quarter. Andre, I want to come back to gross margin and pull together some of the threads we have discussed—ability to price, input cost, productivity, controlling what you can control for the organization. The $1.3 billion pre-tax headwind—thanks for sharing that; that is helpful. Understanding the volatility and the pricing decisions and consumer demand: is your base case that gross margins will likely be down next year given that cost headwind and maybe a lower pricing contribution? Typically, CPG companies are able to price through this.

Is it fair that the base case today would be gross margins are down and there is, understandably, a bit more trepidation around pricing given the environment? Thank you.

Andre Schulten: Thanks for the question, Kevin. The honest answer is I do not know. The second part of the answer is I do not really care—not because I do not care about the financial impact, but because what is more important is what we are doing within the activity system that drives top-line and bottom-line growth. That is what ultimately we want to drive, and then the gross margin and other outcomes follow. If we continue to drive great productivity—which we will; check. If we continue to drive innovation that is winning—even though it is gross margin dilutive; check. If we continue to drive investment in the right trial-driving activities on the sales deduct side; check.

If all of those things happen and the gross margin is down, I feel great about it because it will drive top-line growth and earnings growth. We will not let gross margin dilute because we are not delivering productivity or because we are investing in things that do not drive top line and underlying earnings growth. Where exactly that balance comes out is hard to predict and not that relevant, as long as the underlying activity system does what we need it to do.

Operator: Your next question comes from the line of Filippo Falorni of Citi. Please go ahead.

Filippo Falorni: Hi, good morning, Andre. I wanted to ask about your enterprise market business. You mentioned 5% growth in the quarter and 4% in Asia, Middle East, and Africa. Did you see any impact within that 4% from the conflict in the Middle East in terms of demand? It seems minimal based on the reported results, but are you expecting some further impact in Q4? Also, related to this, in Southeast Asia and India—countries that rely more on oil from the Middle East—do you see any demand impact in those regions, and how do you think that evolves? Thank you.

Andre Schulten: Good morning, Filippo. Every enterprise market cluster has been performing very well. As you said, Asia, Middle East, and Africa were up 4%; Latin America up 5%; Europe enterprise markets up 6%. It is encouraging to see the breadth and consistency of the growth. The Middle East itself is a relatively small part of our global sales—about 2%. I can only thank the team in the Middle East—our Dubai-based and Middle East–based teams—doing an amazing job showing resiliency and professional commitment to keep the business running while dealing with the situation. A big thank you and shout-out to those teams. The direct impact on sales—no; the business is still doing well.

For the rest of the effects, the upstream supply chain is more exposed in the Southeast Asia region, so that is where we will have to do more work to ensure that we can continue to supply, have all the feedstock available, etc. That is a heavy workload that our supply chain team is mastering. It is too early to expect any consumer demand impact from the conflict. We are not seeing that. All markets are growing strongly. India is growing. I think that is a question where we will have more visibility next quarter—and part of why I am happy not to give guidance today.

Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Herzog: Thank you. Good morning. I have a quick question on Baby Care, which appears to be turning following declines over the past year. You highlighted unit volume growth in certain markets. How much of that is end-market-led growth versus market share gains? Also, can you talk about the interventions you have made to drive a turnaround in that business and how we should think about the momentum going forward? Thanks.

Andre Schulten: Thanks for the question, Bonnie. At a global level, Baby Care is growing share. Five of seven regions are growing share, and the biggest region not growing share is the U.S.—that is where the focus is. The regions that are growing are further ahead in truly driving superior propositions. It is the same playbook we have discussed. In China—birth rates down, market volume down, hundreds of competitors—we grew 19% in the quarter. Why? Because we understand the consumer, drive innovation, and have the execution. The same is true in the other four regions that are growing. That is the opportunity in the U.S.

You will see investment in product, in how we communicate benefits more relevantly to U.S. consumers, and in trial-building activity to ensure we get the product into moms' and dads' hands and on babies as fast as we can. The playbook is the playbook, and we know how it works. We are now in execution, which takes some time in Baby Care. It is complicated—manufacturing lineup, etc. But I am very confident the team has the plan, and I am very confident to put the money behind it.

Operator: Your next question comes from the line of Kaumil Gajrawala of Jefferies. Please go ahead.

Kaumil Gajrawala: Hey, everyone. Good morning. As we are all working through the various puts and takes from these geopolitical issues, you mentioned it is not just commodity costs but other things as part of that $1 billion. Can you talk a little bit more about what those items are so we can watch and track them more closely? And then on tariffs, we are starting to see some public companies talk about potential tariff refunds. Where do you stand on that? Thanks.

Andre Schulten: Good morning. The cost impact is broader than just commodity. A lot of feedstock—the majority of our feedstock is petro-based—so inputs like naphtha and other materials into our suppliers’ production systems are part number one. Part number two is sourcing changes we are making, either because of cost or availability, which generally mean less effective sourcing lanes—higher transportation cost, longer lead times, higher inventory levels, including outside warehouse. The third component is reformulation. When materials are not available, we reformulate into others, which might come with upcharges—in many cases they do—because we do not want to dilute product performance, so we go to an alternative formulation that generally comes with higher cost. The last component is finished product logistics.

Diesel costs going up is the most immediate impact you will see in Q4. That immediately passes through to the P&L in terms of higher logistics and transportation costs. On force majeures, we see some suppliers not able to supply at all; we see some manufacturing facilities compromised by the war. It is not just the oil price; it is also availability of product and inputs driving the same impacts I just described. On tariff refunds, we are following the process the U.S. administration is beginning to lay out. Once that process is clear, defined, and accessible, we will follow it. We have about $150 million after tax in refunds available from the Section 301 tariff.

How much of that is recoverable or not—we will find out.

Operator: Your next question comes from the line of Andrea Teixeira with JPMorgan. Please go ahead.

Andrea Teixeira: Thank you, and good morning. Andre, you mentioned the recovery in volumes with innovation. I understand you are also improving affordability in some areas. Have you been able to recover volume share in the most price-sensitive categories? I believe you had some interventions in Tissue in the U.S. And, as you mentioned in Baby Care, in some of the price cohorts that may assist the low-income consumer—can you talk to that in particular in the context of the U.S. and also focus Europe? Thank you.

Andre Schulten: Morning, Andrea. The volume share gains in the U.S. are broad-based. It is a combination of the innovation launches we are driving—Tide liquid is a big component of volume share gain. Family Care is a combination of interventions made by the business and period-over-period effects. Family Care was heavily impacted by the port strikes in Q2, and you see that reverse effect coming through now in share and growth rates. We are very careful. We always look at every component of what we know drives consumers' purchase decisions.

If it is better for them to have a better product, better presented with packaging, clear communication, and execution in store—and if we think that will address the value outage a consumer might see and not pick our products—we will go there, and that works in most cases. Where it is truly an affordability aspect and we are, in relative terms, just too expensive, we will address it that way. It is not a general theme I can give you one way or the other. That is the difficult and careful calibration we are making brand by brand and SKU by SKU. In some cases, it might just be price point versus price per unit or price per dose.

You see a combination of all three drivers: base period effects in share; value interventions we are making on the product and performance side; and selective interventions in either price point or value per use.

Operator: Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead.

Olivia Tong: Great, thanks. Good morning. You have quickly taken a number of actions to improve trial and affordability. It is early days, but what is your read on the staying power of the volume lift it has had and could have going forward? And the 100 basis points of reinvestment in gross margin—was it fairly similar by division, or did it vary materially across divisions? Is that the amount we should expect for the foreseeable future? Thank you.

Andre Schulten: Good morning, Olivia. I think the staying power of the trial and the growth is strong because it is grounded in consumer insight and done at a very detailed level with diligence to address the outage. Will we get it right in 100% of cases? No. But our hit rate is improving significantly, and that is why you see the pickup. We are tracking that diligently. Shailesh and I are sitting down with every business to track whether the interventions are delivering against expectations and, if not, what learnings we are taking.

We have done this now for six to eight months, and you can see as we cycle through these iterations, we get better at diagnosis, triage, and executing the right interventions. The reinvestment type and level is different by business, brand, and country. I cannot give you a standard recipe. It is different by category, by country, by retailer, and by SKU. On the level of reinvestment, give us until July—we are working through those plans now. I do not want to give a blanket answer. It depends on the plans as we review them over the next 90 days and what we decide to go forward with. We will give you more visibility as we get into guidance conversations.

Operator: Your next question comes from the line of Robert Moskow of TD Cowen. Please go ahead.

Robert Moskow: Hi, thanks. A couple of near-term questions and a clarification. Andre, when you talked about fourth quarter being lower than third, can you confirm that is in absolute dollars? And I think in your prepared remarks, you talked about consumers pulling forward purchases as an inflation hedge. Maybe the trade is doing it. Can you speak a little more about that? Do you have any evidence that consumers are doing this to prepare for more inflation ahead?

Andre Schulten: On the pull-forward, if anything, retailers attuned to what is going on might have pulled in a little bit of inventory, but it is hard for us to quantify. On the consumer side—no. I do not think the consumer is loading pantries at this point; nothing visible to us. Consumption is stable. The inventory side has base period and timing effects. I would not say price-driven loading is the biggest part; base period is a significant component. When I say Q4 might be lower than Q3, I am talking about growth rate. If there is a point of shift, a point will come out of the growth rate you anticipated for Q4.

As I said, we would have rounded to 3% in Q3 instead of having a solid 3%. That is the logic of the point forward I was talking about.

Operator: Your next question comes from the line of Edward Lewis of Rothschild & Co Redburn. Please go ahead.

Edward Lewis: Thanks very much. Hi, Andre. On Supply Chain 3.0, I think of this as deploying AI across the organization. When you assess the cost headwinds heading into fiscal 2027, how much advantage do you see already from what you are doing on AI in mitigating that? Or is it still too early to see significant benefit from moves you are making around AI and Supply Chain 3.0?

Andre Schulten: Hey, Ed. I would not call Supply Chain 3.0 just AI. It is really applying technology available to us in our manufacturing and supply chain processes. Some of it is AI, but a lot is more basic automation. We are scaling the technologies across all categories. Unattended shift models are rolling out in more categories and plants. Unattended warehousing, including loading and unloading of finished product and raw materials, is rolling out globally. Real-time touchless quality is rolling out across the corporation. All of that is embedded in the productivity commitments we have made—the $2.0 billion to $2.2 billion, with $1.5 billion in cost of goods. This gives us confidence that we can continue that level of productivity.

What we will be pushing now is how much we can accelerate—how much of the 2030 vision that carries the Supply Chain 3.0 endpoint we can pull forward to help the situation. That will be the conversation over the next 90 days and will inform part of our guidance. We know it works and what to do; we have the technologies available. It is about how fast we roll them out, and that is where we will push the envelope.

Operator: Your final question will come from the line of Michael Lavery of Piper Sandler. Please go ahead.

Michael Lavery: Thank you. Good morning. I want to come back to inflation with a couple of parts. If the pressure is primarily oil-price driven and given the stretched consumer, how do you balance pricing responses versus the volatility in oil prices? And on spending, to clarify your words: you said you would not sacrifice spending on businesses that have momentum. Does that suggest that for businesses without as much momentum you might postpone interventions, or should we hear that any growth-focused investments would continue regardless of the inflation environment?

Andre Schulten: Thanks for the question. The volatility component of oil is a reality, but that is why we are trying to control our destiny. We control productivity. We control sourcing choices. We control innovation. That is where we want to drive the majority of the recovery, because if we price with innovation—no matter where oil is—it will be the right thing for the consumer, since the innovation is worth the pricing we are taking. We are trying to decouple as much as we can the interventions we are making from market volatility so it is the right answer no matter where this goes. It will not be perfect, but that should be the north star.

On momentum versus investment: every business leader's job is to create momentum. We need business plans that give us confidence that where we do not have momentum yet, we will deliver it within a short period of time. I have confidence every one of our business leaders is doing that, with increasing conviction. I do not think we are going to have an issue of not having enough opportunities to invest. We will have the right plans, and then it is a matter of wise and sound resource allocation. Alright, that was our last question. Thank you so much for your time. To close where we started: strong quarter—thank you to The Procter & Gamble Company team.

We are building momentum. Will it be a straight line? Absolutely not. We are working through the headwinds we have identified. We feel very good about our relative positioning to deal with those headwinds. We will talk more—about next year—on the July call. Please do not hesitate to reach out with questions. Our IR team is available to you; so am I. Thank you very much. Have a great day.

Operator: That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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