Procter & Gamble’s stock is recovering from an early morning drop after the company’s results were not so good. We view this quarter as a liquidation event as the consumer packaged goods giant prepares for a better year ahead. Sales for the three months ended Dec. 31 rose 1% from a year earlier to $22.21 billion, slightly short of analysts’ expectations of $22.23 billion, according to data provider LSEG. Adjusted earnings per share, excluding 10 cents per share in restructuring charges, were unchanged from the same period last year at $1.88, beating analysts’ expectations of $1.86 per share. Conclusion We did not expect a strong earnings report, given that approximately two-thirds of the quarter was affected by the government shutdown and resulting delays in SNAP benefits. CEO Shailesh Jejurikar appears to have things under control, and we’re pleased to see the company on track to meet its guidance targets of organic sales growth, core EPS growth, and adjusted free cash flow productivity. Importantly, management confirmed multiple times on the conference call that the reported quarter was the weakest of the year and that stronger growth is expected in the second half of the year. Additionally, some of P&G’s markets outside the U.S. performed well in the quarter, with organic sales up 8% in Latin America and 3% in Greater China. This is not just a US story. This result also shows why a name like Procter & Gamble is so attractive in a difficult operating environment, as management effectively offset a 1% decline in overall sales volume with a 1% increase in overall prices. PG 1Y Mountain P&G 1 Year Return The power of pricing protects your bottom line even in times of price weakness, and what better way to ensure that edge than by selling the best versions of the hygiene products consumers rely on every day? This resiliency can also be attributed to P&G’s well-diversified product portfolio, as organic sales growth in the Beauty & Health Care segment offset lower organic sales in the Grooming and Fabrics & Home Care segments, which offset lower organic sales in the Baby, Feminine & Family Care segment. We view this report as a liquidation event that sets us up for better performance in the year ahead. When a new CEO takes over, it is often also an opportunity to reset investor expectations by revising guidance. It is common for new leaders to under-promise or over-deliver while blaming their predecessors for their over-optimistic leadership. Jejrikar’s decision that there is no need to reset the outlet suggests the stock is a buy at current levels. We reiterate our rating of 1 and price target of $165. Guidance Despite the challenges faced in the quarter, management continued to reiterate its full-year outlook, targeting year-over-year sales growth of 1% to 5%. Organic sales growth is expected to increase 4% year over year. Core earnings in 2026 are expected to increase 4% compared to fiscal 2025 performance of $6.83 per share. This works out to a range of $6.83 to $7.09 per share, with the midpoint of $6.96 falling within the range of estimates compiled by LSEG. However, management’s outlook for fiscal 2026 diluted net income per share growth has been revised downward to a range of 1% to 6% (downwardly revised from 3% to 9%) “to reflect increased non-core restructuring charges in the current year.” Quarterly Commentary As you can see from the earnings table above, despite the difficult sales environment, strong execution and some pricing power enabled the company to achieve above-profits with solid cash flow. In Beauty, organic sales growth of 4% was driven by 3% volume growth, 1% foreign exchange tailwinds, 2% price benefit, and 1% mix headwind. In the Grooming segment, organic sales were flat, driven by a 2% volume decline, a 2% currency tailwind and a 2% price benefit. Healthcare organic sales growth of 3% was driven by 1% volume decline, 2% currency tailwinds, 1% price benefit, 2% mix tailwind and 1% other benefit. In the Fabric & Home Care segment, organic sales were flat due to currency tailwinds of 1%, price benefits of 1%, and sales mix headwinds of 1%. In the Baby, Feminine and Family Care segment, the 4% organic sales decline was driven by a 5% volume decline, a 1% currency tailwind, and a 1% other gain. During the conference call, the team noted that growth in the Baby, Feminine & Family Care and Fabric & Home Care segments was significantly impacted by port strikes and pantry loading in the same period last year, making year-over-year comparisons more difficult. In terms of cash earnings, the team returned $4.8 billion to shareholders during the quarter, including $2.5 billion in dividends and $2.3 billion in stock repurchases. (Jim Cramer’s Charitable Trust is Long PG. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
