Executive summary
Procter & Gamble reported fiscal 2026 second quarter earnings on Thursday, January 22. Core EPS results were slightly ahead of consensus estimates ($1.88 vs. $1.86) while revenue fell short ($22.21Bn vs. $22.28Bn). Despite the mixed results, the stock closed at $149.93, up over +2.6% from the prior day close. Q2 organic sales growth was flat, with Beauty and Health Care segments registering +4% and +3% organic growth, respectively, and the Baby, Feminine & Family Care segment declining -4%. During the quarter, organic volume declined -1%, offset by +1% organic growth from pricing. In summary, the soft results were as expected, driven by market trends and base period dynamics. Management’s reaffirmation of full fiscal year guidance ranges for organic sales growth and core EPS seems to have provided investors a sense of relief if not optimism.
What we like
Excluding the negative impacts affecting the Baby, Feminine & Family Care segment and, to a lesser extent, the Fabric & Home Care segment, the rest of the Company grew organic sales nearly 3%, with almost all regions outside the U.S. growing or accelerating during the quarter.
Two segments, Beauty and Health Care, delivered solid growth in the quarter with organic sales up 4% and 3%, respectively. In a quarter where Company organic sales growth was flat, this highlights the dramatic drag effect from base period trade and consumer pantry-loading in the U.S. coupled with competitor promotional spending in the current quarter. Management has expressed confidence in a return to expected growth levels in the U.S. in the back half of the fiscal year.
We also note the continuation of robust growth in Greater China and Latin America. Greater China Q2 organic sales grew 3%, led by Pampers and SK-II (skin care), following 5% growth in Q1. Latin America Q2 organic sales grew 8%,
led by Mexico and Brazil, following 7% growth in Q1.
What bears watching
In the U.S., P&G’s largest market, data indicates increasing consumer trade-down in some of P&G’s key categories. North America Q2 organic sales were down -2% and volume down -3%. Management has highlighted soon-tolaunch innovation in the U.S., as well as the lapping of an abnormally difficult base period, as reasons for confidence in a return to expected growth levels. Uncertainty around the extent of the impacts, and when they will take hold, is a risk factor to monitor, especially given the persistence of the budget-stretched U.S. consumer on the low end of the K-shaped economy.
Bottom line
Fiscal 2026 Q2 was a challenging quarter for P&G, marked by flat organic sales overall and declines in North America. Management has clearly framed its expectation that Q2 will be the year’s weakest quarter, with stronger performance in the back half of the year on innovation driven improvement in the U.S. and continued strength internationally. Full year guidance ranges are maintained, forecasting 0-4% organic sales growth, and core EPS growth of 0-4%. P&G returned $4.8 billion to shareholders during the quarter, including $2.5 billion in dividends and $2.3 billion in share repurchases. Management guided to $15 billion of full year shareholder cash returns comprised of $10 billion in dividends and $5 billion in stock buybacks. Though the challenging quarter represents a clear bump in the road, management’s track record and commitment to its integrated growth strategy focused on reinvesting for superiority of its portfolio of daily-use categories, fueled by gains from faithful execution of productivity plans, is a reasonable basis to expect improved results and balanced growth for fiscal 2026.