Procter & Gamble Q4 Earnings Beat on Productivity, Sales Miss Estimates

Beauty sales increased 6% year over year to $4 billion, supported by 3% volume growth, a 2% currency benefit and 1% higher pricing.

Fabric & Home Care remained the largest business, with sales increasing 1% to $7.4 billion. Baby, Feminine & Family Care sales dipped 1% to $5 billion. Grooming and Health Care each posted 1% sales growth, reaching $1.7 billion and $2.8 billion, respectively. Our model expected a sales rise of 5% for Beauty, 1% for Grooming, 3% for Health Care, 2% for Fabric & Home Care, and flat sales at Baby, Feminine & Family Care, in the reported quarter.

PG’s shares have dropped nearly 3% following the earnings release. This Zacks Rank #4 (Sell) stock has lost 1.3% in the past three months against the industry’s 5.6% growth.

PG’s Organic Sales Reflect Mixed Category Trends

Beauty led the quarter with organic sales growth of 4% year over year. Hair Care advanced in the mid-single digits on higher volumes in Asia Pacific and Europe, innovation-led pricing and favorable geographic mix. Personal Care also delivered mid-single-digit organic growth on volume growth in all regions and increased pricing, mainly in North America, somewhat offset by adverse geographic mix. Skin Care organic sales were flat as favorable product mix, led by growth of the super-premium SK-II brand, was negated by lower volumes in Greater China.

Grooming and Fabric & Home Care organic sales were unchanged year over year. Health Care declined 1%, reflecting weaker Oral Care volumes in North America and Greater China. Baby, Feminine & Family Care fell 2% as volume pressure and merchandising investments weighed on Feminine Care and Family Care.

Our model had expected an organic sales rise of 2% for Beauty and 1% for Fabric & Home Care. Our model anticipated an organic sales drop of 1% at Grooming, flat at Health Care, and down 1% at Baby, Feminine & Family Care for the fiscal fourth quarter.

PG’s Margins Face Reinvestment Pressure

Reported gross margin contracted 60 basis points year over year to 48.5%. Excluding incremental restructuring costs, core gross margin was unchanged at 49.1%. 

Core gross margin was unchanged as 160 basis points of productivity savings, 40 basis points of net tariff gains, 20 basis points of other miscellaneous items and rounding and 10 basis points of pricing were offset by 120 basis points of adverse product mix, 70 basis points of product/package reinvestments and 40 basis points of elevated commodity costs. We had projected core gross margin contraction of 20 basis points to 48.9%.

Core selling, general and administrative expenses increased 130 basis points to 29.6% of sales compared with our expectation of 80-basis-point of increase to 28.8%. Marketing and other reinvestments added 410 basis points, partly offset by 300 basis points of productivity savings. Consequently, core operating margin declined 130 basis points to 19.5%, including gross productivity savings of 460 basis points. We had expected a core operating margin decline of 80 basis points year over year to 20%.

Procter & Gamble Generates Strong Cash Flow

Operating cash flow totaled $19.6 billion in fiscal 2026. After capital spending of $4.4 billion, adjusted free cash flow was $15.8 billion during the fiscal year. Adjusted free cash flow productivity, which measures cash generation relative to earnings, reached 100%.

PG returned more than $15 billion to shareholders, including $10.2 billion in dividends and $5 billion through share repurchases in fiscal 2026. As of June 30, 2026, the company ended June with cash and cash equivalents of $9.9 billion.

PG’s Fiscal 2027 Outlook

PG expects fiscal 2027 all-in sales and organic sales growth of 1-3% each. Organic sales guidance incorporates a 30-50-basis-point headwind from brand, product form and go-to-market discontinuations.

Core earnings are projected to range from flat to 3% growth, implying $6.89-$7.11 per share. Management expects roughly $1 billion in after-tax headwinds from higher raw material, energy and transportation costs. Interest expense, lower non-operating income and unfavorable currency are expected to create additional pressure. On a combined basis, such impacts equate to a headwind of 56 cents a share for fiscal 2027, or an eight percent drag on core EPS growth.

The company expects fiscal 2027 adjusted free cash flow productivity of 85-90%. Capital spending is projected at 4.5-5.5% of net sales, reflecting continued investment in manufacturing capacity and business operations. PG plans to distribute about $10 billion through dividends and repurchase roughly $5 billion of common stock in fiscal 2027.

Stocks to Consider in the Consumer Staples Space

United Natural Foods UNFI, which is the leading distributor of natural, organic and specialty food and non-food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for United Natural Foods’ current financial-year sales indicates a drop of 2.1% from the prior-year level. UNFI delivered a trailing four-quarter earnings surprise of 29.9%, on average.

Medifast, Inc. MED, which is a leading manufacturer and distributor of clinically-proven healthy living products and programs, currently carries a Zacks Rank #2 (Buy). MED missed the average earnings surprise by a sharp margin in the trailing four quarters. 

The Zacks Consensus Estimate for Medifast’s current financial-year sales indicates a decline of 25.9% from the year-ago number. 

Freshpet, Inc. FRPT, which manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats, currently carries a Zacks Rank of 2. 

The Zacks Consensus Estimate for Freshpet’s current financial-year sales indicates growth of 9.5% from the prior-year level. FRPT delivered a trailing four-quarter earnings surprise of 49.4%, on average.

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