P&G Growth Stalls to Flat as Margins and Profit Slide
Procter & Gamble's organic sales growth fell to 0% in its fiscal fourth quarter, erasing a third-quarter acceleration and dragging Core EPS down 3% to $1.43.
Procter & Gamble (PG) reported organic sales growth of 0% in its fiscal fourth quarter, with net sales up just 2%, as the consumer-products maker's momentum reversed after a stronger third quarter. Diluted earnings per share fell 15% year over year to $1.26, and Core EPS dropped 3% to $1.43, a sharp swing from the third quarter's gains of 6% and 3%, respectively.
The deceleration traces to volume and pricing both giving out at once. Organic volume was flat in the quarter after rising 2% in the third quarter, while organic pricing, which had added a percentage point of growth in both of the prior two quarters, contributed nothing in the fourth. The result was a company that grew sales all fiscal year on the strength of price increases and then lost that lever in the final quarter.
Margins compressed alongside the slowdown. Reported gross margin fell 60 basis points year over year to 48.5%, and operating margin dropped 220 basis points to 18.6%; the full year saw gross margin decline 100 basis points to 50.2%. Core SG&A as a percentage of sales rose 130 basis points, as 410 basis points of reinvestment, primarily in marketing, outpaced 300 basis points of productivity savings, pushing core operating margin down 130 basis points.
Segment results were uneven. Health Care organic sales fell 1% in the quarter, reversing 2% and 3% growth in the prior two periods, as Oral Care volumes declined in North America and Greater China. Baby, Feminine & Family Care organic sales dropped 2%, extending a pattern of weakness that included a 5% decline earlier in the year and has not stabilized. Beauty remained the strongest segment, with organic sales up 4%, though that marked a slowdown from 7% growth in the third quarter. Segment earnings before taxes showed declines across the board — Beauty down 17%, Grooming down 10%, Health Care down 8%, Fabric & Home Care down 9%, and Baby, Feminine & Family Care down 11% — indicating profitability pressure reached further than the topline numbers alone suggested.
Full-year net earnings were flat at roughly $16.1 billion despite 3% net sales growth and 1% Core EPS growth, as the effective tax rate climbed to 20.8% from 20.3%, with the fourth-quarter rate alone jumping 190 basis points to 21.7%. Adjusted free cash flow productivity for the full year fell to 100%, though the fourth quarter's 133% productivity outpaced the third quarter's 82% and second quarter's 88%, pointing to uneven cash conversion through the year. The January 2026 dissolution of its Glad joint venture, in which Clorox purchased Procter & Gamble's minority stake for $476 million, produced a $261 million after-tax gain that boosted third-quarter diluted EPS growth but was excluded from Core EPS and cash-flow productivity figures.
For fiscal 2027, Procter & Gamble guided to sales growth of 1% to 3% and organic sales growth of 1% to 3%, including a new 30 to 50 basis point headwind from brand and product discontinuations. Diluted EPS is guided to grow 1% to 5%, and Core EPS is guided to range from flat to up 3%, with the company quantifying an explicit $0.56 per share, or 8%, headwind from commodities, interest expense, non-operating income and foreign exchange — a level of detail absent from the reiterated guidance in the second and third quarters.
More than half of its previously announced $1.0 billion to $1.6 billion two-year restructuring plan was incurred in fiscal 2026, with the remainder now guided to land in fiscal 2027, the first time the company has quantified the completion split.