PG - NYSE

Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to The Procter & Gamble Company's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, The Procter & Gamble Company needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. The Procter & Gamble Company believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website, www.pginvestor.com, a full reconciliation of non-GAAP financial measures. Now I will turn the call over to The Procter & Gamble Company's Chief Financial Officer, Andre Schulten.

Good morning, everyone. Joining me on the call today is John Chevalier, Senior Vice President, Investor Relations. I will start with an overview of third-quarter results and spend a few minutes on strategy and innovation. We will close with guidance for fiscal 2025, and then we will take your questions. Third-quarter results on both the top and bottom lines were heavily impacted by consumer and retail volatility during the quarter, primarily in the US and Europe. As we highlighted at the CAGNY conference in late February, our approach in the face of this near-term volatility is to protect our investment in the long-term health of our brands, innovation, and demand creation. We are adjusting our fiscal year guidance in accordance with this approach. Organic sales for the quarter grew 1%. Volume and mix were in line with the prior year, and pricing added one point to organic sales growth. Growth remains relatively broad-based across categories, with seven of ten product categories holding or growing organic sales for the quarter. Personal health care was up high single digits. Skin and personal care grew mid-singles. Fabric care, oral care, feminine care, grooming, and hair care were each in line to up low single digits. Family care, baby care, and home care were each down low singles. Organic sales in focus markets grew 1%, and enterprise markets grew 2%. Organic sales in North America grew 1%, the change versus the 4% growth trend over the last five quarters was driven by a combination of lower consumer offtake across our categories, which is evident in published market data, and trade inventory reductions which we discussed at CAGNY. One encouraging sign is that we returned to shipment levels consistent with the pace of consumer offtake in the month of March. Another positive sign is that market share held up well within the quarter. In Europe-focused markets, organic sales were up 1% as our categories saw similar impacts from consumer confidence. France continues to be a significant headwind with organic sales down high teens in the quarter versus the base period that grew 20%. We have now annualized the implementation of the Egalim Free Law in France that will have easier comps going forward. Rates of China organic sales declined 2%, a modest step up on the path back to growth in the region. Notably, SK-II in Greater China grew double digits behind strong consumer response to the super-premium LXP innovation and the supporting marketing campaign. Underlying market conditions remain relatively soft, but we are encouraged by the progress we are seeing in several categories. Latin America led the enterprise markets, delivering 6% organic sales growth despite difficult consumer dynamics in Mexico. European enterprise markets grew low single digits, and the Asia Middle East Africa region declined low singles. Tensions in the Middle East have remained high and continue to put pressure on markets and US brands. Global aggregate value share was down modestly versus the prior year, with 27 of our top 50 category-country combinations holding or growing share for the quarter. On the bottom line, earnings per share were $1.54, up 1% versus the prior year on a currency-neutral basis. Core EPS increased 3%. Core gross margin was down 30 basis points, and core operating margin increased 90 basis points. Currency-neutral core operating margin increased 100 basis points. We maintained strong margin investment levels supported by 280 basis points of productivity improvement, including adjustments to planned compensation awards given year-to-date trends versus our targets. Adjusted free cash flow productivity was 75%. We returned nearly $3.8 billion of cash to shareholders this quarter, $2.4 billion in dividends, and $1.4 billion in share repurchases. Earlier this month, we announced a 5% increase in our dividend, again reinforcing our commitment to return cash to shareholders. This is the 69th consecutive annual dividend increase and the 135th consecutive year The Procter & Gamble Company has paid a dividend. To summarize the third quarter, the team managed well with

Pardon me, ladies and gentlemen. It appears we have lost connection to our speaker line. Please stand by while we reconnect the speaker line. Thank you for your patience. One moment. Ladies and gentlemen, thank you for your patience. I have reconnected the speaker line. And we will ask the speakers to continue. Andre?

Apologies for the technical issue here. We are picking up at the strategy comments. We are not exactly sure where we got disconnected, but we can follow up in the Q&A session if there are any elements on the results that we need to pick up on. On the strategy side, now is the time for investment in and flawless execution of our integrated growth strategy. Delivering superiority across every part of our portfolio is the path to growing categories, providing value to consumers and customers, and creating value for shareholders. We must do this across all value tiers where we play, all retail channels, and all consumer segments we serve. As we have done in the past, we will continue to actively manage our portfolio across markets and brands to strengthen our ability to generate US dollar-based returns in daily-use categories where performance drives brand choice. We will continue to accelerate productivity in all areas of our operation to fuel investments in superiority, mitigate cost and currency headwinds, drive margin expansion, and we will continue our efforts to constructively disrupt ourselves and our industry, changing, adapting, and creating new ideas, technologies, and capabilities that will extend our competitive advantage. We are empowering our highly capable and agile organizations that are ready to step forward to create value for all consumers, customers, and shareholders. These choices—portfolio, superiority, productivity, constructive disruption, and organization—reinforce and build on each other. We remain confident in our strategy and its importance, especially in difficult times, to drive market growth and deliver balanced growth and value creation. A long-term focus on the strength of our brands, business, and categories is the best way to position ourselves for stronger growth as the economic climate and consumer confidence improve. This starts with strong innovation plans. We have many new innovations that launched in the fall or are hitting shelves now. We recently launched our best whitening toothpaste ever, Crest 3D White Deep Stain Remover. The new formula works in just one day to dissolve the bonds that lock stains in your teeth and better prevent stains from reoccurring. Deep Stain Remover is off to a great start and is driving Crest market share growth in the US toothpaste category. We launched our most advanced power toothbrush, Oral-B iO10, early last year, and we followed up with iO2, the first iO designed to help consumers trade up from a manual toothbrush to a power brush. The combination of premium and entry-point innovation is working well, with Oral-B Powerbrush share up 50 basis points in the US. We also have strong innovation across all price tiers in fabric care. Tide OxyBoost Power Pods are launching this quarter. OxyBoost includes two times the OxyPower to provide Tide's most powerful clean. In addition, we have innovation at the mid-tier of our detergent price range. Gain Odor Defense detergent lifts away tough odors at the source and includes 40% more freshness ingredients. Finally, Tide Evo, our new laundry detergent developed on our breakthrough function fibers platform, continues to exceed expectations in our now expanded Colorado test markets. Tide Evo offers superior cleaning performance in fully recyclable packaging with no plastic bottles or water. In the stores where Tide Evo is present, it's proven to be highly incremental to category growth despite its premium pricing. Great progress across all criteria we set for the test market, including manufacturing readiness. We have many other innovations launching right now, in grooming upgrades to blades and razor handles on Gillette Labs and Venus, and Venus now includes shower hooks with all razor handles. Tampax now has a 20% longer leak guard rate for improved leak protection, and Always new Pocket Flex Foam full-size protection in a tiny pack, making it incredibly convenient for on-the-go use. Pampers' innovation is coming in essentially every element of its portfolio over the next year. Homecare has innovation this spring on Febreze, Dawn, Cascade, Mr. Clean, and Swiffer, more than we have time to discuss on this call in detail. We chose to maintain our innovation plans during the early stages of COVID. We did the same in the early stages of the severe inflationary cycle a few years ago. It's unclear how long this period of consumer softness will last, but we know The Procter & Gamble Company will be stronger if we keep innovation across every part of our portfolio and keep investing to drive consumer interest and demand in our categories. As market leaders in many of our categories, we know our retail partners rely on The Procter & Gamble Company innovation to drive market growth in difficult times for consumers. This role is especially important and offers a unique opportunity for our brands to differentiate themselves in terms of both performance and value. We will continue to drive productivity and make smart choices in all areas of cost to ensure mitigating headwinds along the way. However, we will not cut to save the bottom line for a quarter only to lose momentum for the year. We will maintain a long-term view, which leads us to our revised outlook for fiscal 2025. As we have highlighted, we continue to expect the environment around us to remain volatile and challenging, from input costs to currencies to consumer, competitor, retailer, and geopolitical dynamics, and now tariff impacts. I will talk through each of these, and I will get to tariffs in the end, so please bear with me. On the top line, we now expect organic sales growth of approximately 2% for the fiscal year. With one quarter remaining, this deducts to fourth-quarter organic growth of 0.5% to 4.5%. A key determinant in where we land within that range is underlying market growth. Regardless of whether markets remain weak or accelerate back to prior growth levels, we expect to grow our brands modestly ahead of underlying markets. On the bottom line, our outlook is now for core EPS of $6.72 to $6.82 per share for the fiscal year. This equates to core EPS growth in the range of 2% to 4% for fiscal year 2025, versus prior year core EPS of $6.59. This guidance deducts to a range of $1.37 to $1.47 for the fourth quarter. Our outlook for commodity costs remains unchanged, forecasting a commodity cost headwind of approximately $200 million after tax, which equates to a headwind of $0.08 per share for fiscal 2025. Since last earnings, foreign exchange rates have eased modestly. We are now estimating a headwind of approximately $200 million after tax, which equates to a headwind of $0.08 per share for fiscal 2025. We continue to expect lower non-operating income benefits for the fiscal year. As a reminder, the fourth-quarter base period includes the gain from the divestiture of our Vidal Sassoon brand in China. We are now forecasting only modest headwinds from net interest income and expense, and an effective tax rate roughly in line with the prior year. Combined, these below-the-line items are around a $0.04 headwind to core EPS. We continue to forecast adjusted free cash flow productivity of 90% for the year, and we have plans to pay around $10 billion in dividends and to repurchase $6 to $7 billion in common stock. Combined, returning $16 to $17 billion of cash to shareholders this fiscal year. This outlook assumes a range of $100 to $160 million in BT tariff impacts in the fourth quarter, or $0.03 to $0.05 per share. This assumes current tariff rates hold for the full quarter when products and materials inbound to the US and other tariffs impacted markets will be affected, and when those goods will be recognized in our P&L as finished products are sold to retailers. Currently, the largest US tariff impacts are coming from raw and packaging materials and some finished products sourced from China. While China accounts for just over 10% of total imports exposure to the US, the size of the tariff rate makes the cost impact more substantial. The largest impact of responsive tariffs on US exports is from the finished products shipped from the US to Canada. We will be looking for every opportunity to mitigate the impact, including sourcing flexibility and productivity improvements. We also need to consider some level of consumer pricing in effective categories and markets. The guidance we share today is based on current market growth rate estimates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruption, major supply chain disruptions, store closures, or tariff changes are not anticipated within the guidance range. To wrap up, we are pleased with the results The Procter & Gamble Company people have delivered in a very challenging and volatile environment. And we remain focused on excellent execution of our integrated, dynamic, and market-constructive strategy. Innovating and investing to drive market growth and balance top and bottom line growth and value creation. With that, we will be happy to take your questions.

If your question has been answered or you would like to withdraw your question, please press star followed by two. Our first question today will come from Lauren Lieberman of Barclays. Please go ahead.

Great. Thanks so much and good morning. So Andre, during the quarter, you guys had definitely discussed the retail inventory destocking in the US and that that kind of morphed into more of a real slowdown in consumer takeaway. And you'd also flagged, you know, similarly changing behavior in Europe. US consumer confidence metrics are very weak. Europe, to a lesser degree, was still below consensus forecast. So just with that context, would love to get your latest readout since your behavior in these regions and, you know, kind of what are you planning to do differently. I know you talked about all the innovation, but to support revenue growth and market share, it seems it feels like we're probably gonna get worse from here from a market growth standpoint. Thanks.

Good morning, Lauren. Yeah. Good to start with the consumer. If you go back, as you rightly say, when we were at CAGNY, which was kind of around the end-middle of February, the consumption data that we saw through mid-January, which was the data that we had available at that point, still looks stable. We highlighted the inventory drawdown that we saw, but consumption levels were stable since then. The consumer has been hit with a lot of volatility, market volatility, that impacts their portfolios, their 401(k)s, volatility in the economic outlook, uncertainty on the job market, volatility in terms of mortgage rates expectations, all the divisiveness and nationalistic rhetoric that we saw around the world, uncertainty on tariffs and the impact on prices and availability of goods. So, I mean, the consumer has been hit with a lot, and that's a lot to process. So what we're seeing, I think, is a logical response from the consumer to pause. And that pause is reflected in retail traffic being down. It's also reflected in somewhat of channel shifting in the search for the best value. Shifting into online, shifting into big box retailers, and shifting into the club channel in the US specifically. All of that put together means consumption levels are down in both Europe and the US. The US has been growing over the past twelve months around 3% in terms of value consumption. What we've read through February and March was closer to 1%. Similarly, the European consumer has been at about 3% over the past twelve months. And again, that consumption level now is down to about 1%. Glass half full, The Procter & Gamble Company is growing or holding share. Europe volume share continues to be up in the most recent reading about 30 basis points. US shares are holding. Private label shares in both regions continue to trend down and actually accelerating downwards in Europe. So the message we draw from this is that the superiority of our brands delivering performance to consumers in uncertain times is still value to consumers. They are choosing our brands, and so we take encouragement to double down on our strategy because we see that as the only viable path through this level of volatility that we're experiencing. We're doubling down on innovation, we're doubling down on superiority. We are heavily focused on driving productivity and heavily focused on ensuring our organization can be as agile and externally focused as possible to be close to consumers and close to markets so that we can grow the business for all those jobs to be done that consumers don't want to fail in. What we focus on as well is a longer-term outlook. You've heard us talk about our determination to remain invested in the business. We think it's absolutely critical. So even if we saw volatility in the short-term consumption, we are determined to remain invested both from a brand building, innovation, and go-to-market perspective. And we continue to focus in a volatile environment on the two to three-year balance between top line and bottom line growth, and that's what you'll see us talk about and execute.

Our next question today will come from Bryan Spillane of Bank of America. Please go ahead.

Thanks, operator. Good morning, Andre. I guess I had a question just around how we should begin thinking about approaching modeling forecasting for 2026. And so maybe can you give us a little bit of perspective on one, just category growth rates now and, you know, as we're kind of thinking about exit rates in 2026? And then as we're looking at this year as a base, so fiscal 2025 as a base, how much more incremental, how many more incremental levers are there to pull as we look at next year in terms of either offsetting the incremental cost of tariffs or, you know, demand begins to be subdued. So just trying to understand from you just what are some of the factors you're looking at we should consider as we begin to kind of look at our model out past the end of fiscal 2025?

Yeah. Good morning, Bryan. Stepping back at the global level, obviously, the reduction in consumption levels that we saw in the US and in Europe have an impact on global growth rates. Over the past twelve months, we have seen global growth in the range of 3.5% value growth, that is now down to roughly 2.5%. We expect markets to return to the 3% to 4% growth rate, but it's very hard to predict, as you can appreciate, with the current volatility we see in all of those factors I mentioned in response to Lauren's question. When that's gonna happen. So we're really taking a longer look at our plan over the next two to three years, ensuring that as markets return over that period to 3% to 4% growth, do we have sufficient investment ability to maintain superiority and extend superiority across all of those category-country combinations within strategic. So category growth question mark in the short term. Mid-term, we expect it to return to 3% to 4% growth rate. The levers for us are the same levers that we talk about in our integrated strategy. I think the tariff impacts that are visible to us right now at a growth level are in the range of $1 to $1.5 billion. So it's not immaterial. For us to offset those, in the short term, we have to consider productivity, which we will double down on, and we have a very productivity plan over the next three years that I feel very bullish about. We have to continue to invest in innovation and superiority and enable actually more investment in those areas in the short term and the midterm. And that innovation that we are pushing out will have to carry some level of pricing. If you think about the short and midterm, the uncertainty around tariffs, and honestly the difficulty to adjust sourcing formulation, or even asset location, I think it's clear that productivity, innovation, and pricing are probably the short-term levers that we will employ. But looking at all the other levers, including formulation and sourcing changes, obviously, as well, the fact that we are close to our consumer for the majority of our production, I think, is a benefit for us. But the number in and of itself, obviously, is still not immaterial, so we'll have to continue to figure out how to do that. So the one piece I would want you to take away is assume category growth rates return to normal levels. And we will focus really on a glide path over two to three years to deliver mid-low to mid-singles in terms of top line, and mid to high singles in terms of EPS growth.

The next question will come from Steve Powers of Deutsche Bank. Please go ahead.

Yes. Hey. Good morning. So, Andre, you talked about, you know, the innovation pipeline strength and the importance of maintaining the momentum on that front. Haven't I haven't parsed through all of them, the math, implied in the updated guidance, but could you just talk about whether kind of net of everything, the level of investment that you're putting behind that innovation and behind demand building going forward, has changed all in this updated outlook. And then, you know, whether or not the magnitude has given what you're seeing in the consumer, has the nature of that investment changed at all? In terms of, you know, advertising versus trade or the like? Just how you're thinking about the support you're gonna put behind that innovation as you go forward. Thank you.

One, excuse me. Investment levels are always adjusted both across regions, markets, categories, brands, and periods because the plans are obviously year over year different. You look at fiscal year-to-date investment levels, specifically on media and advertising, we are flat in terms of percentage of sales. And as we said, we have a very strong innovation pipeline in the balance of the year, which we intend to focus all investments on. What exactly that dollar spending is, we'll adjust as we see the plans unfold. But the one thing that is very clear to us is we continue to be committed to fully support the innovation across the fourth quarter. That innovation is best supported with strong communication. So media, advertising, to our consumers is the primary vehicle of investment. I don't view us shifting the mix between advertising and trade promotion. Trade promotion always plays a role as we launch new innovation in driving trial. But it's mainly focused on visibility, and we have a pretty good track record of creating visibility on new innovation without deep discounting. The market so far is responding the same way. You see relative stability in terms of promotion depth and frequency both in Europe and in the US. And we certainly have no interest in changing that other than driving trial and awareness of the new innovation that we're pushing.

Our next question will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

Hey. Good morning. So, Andre, you highlighted doubling down on superiority in innovation in this environment. It's obviously recent years. With the consumer pressure points we're seeing, if we do start to see more consumer trade down, can you discuss how you see The Procter & Gamble Company is positioned today versus past cycles? And then also, have you seen any specific geographies of product categories or private label shares picked up so far? You touched on this earlier, but what's The Procter & Gamble Company's market share performance been in some of those areas if in fact you're starting to see that dynamic play out a little more? Thanks.

Morning, Dara. I think we continue to view ourselves as well-positioned to serve the consumer even as their value equation might shift. We have a way better portfolio in terms of vertical value offerings from a brand perspective. And we have a very broad portfolio in terms of price points and pack sizes across all channels around the world. And that's true from China to Europe to North America. You also see in our innovation that we are focusing innovation on all value tiers in all categories. As we innovate on Tide, we're also innovating on Gain. As we're innovating on Swaddlers, we're innovating on Luvs and Baby Dry. And that's actually a good part of the innovation that is launching over the next few months is focused on driving innovation across all the tiers so that we can serve consumers and have relevant offerings that are superior versus the relevant competitive set at each price point and price tier. So well-positioned there, but I would say the teams are paying extra attention to ensuring that we have the innovation calibrated with the consumer environment in mind. And the support models calibrated in the same way. That, I think, has enabled us through all of these periods of volatility. If you go back pre-COVID, COVID inflationary cycle with 8%, 10% of pricing, we've grown share or held share across all of those periods. And even in this current period, with, obviously, some variability if you look at a month, we continue to hold our gross share. Private label shares continue to trend down, which is not the answer, but it is a good indication that in a more value-conscious environment, that portfolio is holding up well. We are able to serve consumers across all channels. You see the shift in the US specifically towards online, big box, and club. Again, in those channels, we're able to serve the consumer, hold share, and grow categories. If the consumer grows towards the dollar channel or discounters, we're able to have the relevant offerings there. So long answer, not an easy task. The team is very focused on ensuring we have the appropriate value proposition across all of those vectors. And so far, we've proven that we can do that.

Our next question is from Filippo Falorni of Citi. Please go ahead.

Hi. Good morning, everyone. Wanted to ask a broader question around brand sentiment towards American brands around the world. Are you seeing any signs other than the Middle East where I know it's been a pressure point for you guys for quite a few quarters of some anti-American brand sentiment around the world? And specifically on China, we're seeing some improvement there, obviously, SK-II back to growth, as you mentioned. Do you see some risk on the other side of the China business, particularly the Olay and the Air Care business potentially going forward and maybe just some expectation on the growth forward in China? Thank you.

Morning, Filippo. We have not observed in data that there is an impact in terms of nationalistic consumer behavior. We obviously are paying very close attention to social media or trade activation. And while we see some noise in markets like in Canada, none of that has yet resulted in any change of consumption behavior that we can attribute to any of those dynamics in many of the markets, and I would argue actually in most of our markets. Our brands have been present for ten, twenty, or thirty years. And if you ask consumers, they view them as local brands that they grew up with, not as a US brand that is foreign to them. I think that's the case in Europe. That's the case in China. And even in Canada, where probably the noise level is the highest, consumption is held steady at 4% on a base of 6% in the previous year quarter. So nothing to report on that front yet. In China, actually, we're very encouraged because we're seeing in a still tough consumer environment, SK-II accelerating to 11% growth in the quarter behind strong innovation on the super-premium tier of LXP. But even the core tier is responding very well to our communications strategy focused on brand superiority at Patera. Our new department store counters are working extremely well. Olay has picked up and returned to growth in the current quarter. So we now see 2% growth on our Olay portfolio, behind innovation on anti-aging following the trend that the market has made from the toning benefit to anti-aging benefit. Our baby care business continues to do well. If you look at Europe-focused markets, the one structural element we need to keep in mind is France is heavily impacting the Europe-focused markets results. The Egalim promotion law was impacted on March 1st of 2024 and led to heavy loading both from a retail and from a consumer standpoint in that period. If you take that loading effect out, Europe-focused markets would have grown 5% in the quarter. So long way of answering the question that's not coming through in any of the data that we're seeing either qualitatively or quantitatively. We'll continue to keep an eye on it. Our best response to all of this is to have the best brands available with the best value equation, with the best superiority, for our consumers and our retail partners.

The next question will come from Chris Carey of Wells Fargo Securities. Please go ahead.

Hi, good morning. I just wanted to follow up on one area then ask a broader question. But regarding Andre, your response, I believe, to Bryan's question and it's you're not giving fiscal 2026 guidance today. Full get that. But the glide path back to category growth rates, I think you had said something like over, you know, the next two to three years. Does that imply that, you know, you'd be a bit below historical category growth rates for the foreseen future, including into fiscal 2026, or was there an expectation that category growth would perhaps return to those levels in fiscal 2026 with a bit more pricing? I fully realize that there's no crystal ball, but I was kind of this question to clarify the very near term versus the medium term. And if I could, your investor day was very much focused on opportunities in North America and in Europe. And coincidentally, those are the areas where category growth has slowed. So are you thinking about, you know, adjusting your playbook at all in light of, you know, category development, or is it still very much, you know, aligned with the strategy from a geographic standpoint that you laid out at Investor Day? Thank you.

Good morning, Chris. Our playbook aims to deliver balanced top and bottom line growth over a two to three-year period. We won't hit that algorithm every quarter. We won't hit it every year. We look back over a two to three-year period. We want to deliver that algorithm. That is true for how we approach the next two to three years. As you said, there is no crystal ball. We don't know what the category growth rate is going to be given all of the volatility that the consumer is facing. And we won't guide today. I think the only logical conclusion is a wide expectation in terms of possible outcomes. That's how we have to plan. That's what our teams are getting ready to deal with. And I think that's the only insight I can give you. Uncertainty, which we face, means a wider range of planning and possible outcomes. In terms of the opportunity that we have highlighted during investor day, what we're currently seeing only means that capturing those opportunities is even more important today than it might have been six months ago. So the $5 billion growth opportunity we've highlighted in the US by driving household penetration of our biggest brands, Tide, Cascade, Bounty, for example, all only in 40% or less of US households, is a huge opportunity by further segmenting the consumer base and being more targeted in serving them, communicating with them, and driving trial and repeat across those brands. Further doubling down on new innovation, new jobs to be done, let consumers have not yet widely adopted. We keep talking about fabric enhancers. That's still 30% household penetration or below and even only 40% to 50% of load penetration. Driving power oral care as an opportunity to increase oral health for consumers across the US with the launch of iO2. Converting manual toothbrush users to electric toothbrush users. All of those opportunities are still there. We still see $5 billion of growth that we can capture. And that's why we want to double down on our investment because that's really focused on capturing those growth opportunities. And the same is true for Europe. So nothing's changed. And that's why you see our almost stubborn commitment not letting go of innovation, not letting go of investment, and not letting go of our collaboration with retailers to serve the consumer even better in the future.

Our next question will come from Peter Grom of UBS. Please go ahead.

Thanks, operator. Good morning, Andre. So I was hoping to get some more perspective on international market growth. You touched on the Europe-focused markets being up 1%. You outlined the impact France is having. Latin America up 6% despite challenges in Mexico. So just would be curious if you can unpack category growth in those regions versus market share performance. And then you outlined some of the shifts in consumption that are happening in Europe, in your response to Lauren's question. I'd be curious what you're seeing in terms of consumption across Latin America more broadly. Thanks.

We're very pleased with the Latin America results. Maybe to start there, Peter, 6% organic sales growth is a great result with a very strong base. I think it was 17% in the base period. Brazil growing 8%, Mexico growing 6%, and that's with Mexico's consumers probably as volatile as the US consumer. So we feel good about category growth in the region. We have Argentina now as an import market, which I think stabilizes the region from an overall growth perspective. And I see, again, strong innovation and focus of both our Brazil teams and our Mexico teams, the biggest markets in the region, to drive innovation, drive category growth, and help accelerate that growth rate even further. From a China perspective, the message hasn't changed. The market is still flat to down across our categories. We are making progress within that. Minus 15 quarter one, minus 5 quarter two, minus 2 quarter three. But I do believe that, again, recovering China will take time and won't be a straight line. The message there hasn't changed. And we focus on steady progress on our growth rate and bringing more and more of our categories and brands into positive territory, but China will continue to be volatile in our mind. The rest of the world, again, I won't have much more intelligence other than to say we saw growth rates slow from 3.5 to 2.5. Structurally, we believe that the world will return in our categories to 3% to 4% growth. And as I mentioned in response to Chris' question, don't have a crystal ball. So the only way to deal with the uncertainty that comes with the current consumer growth rates is to focus the organization on the strategy and plan for a range of outcomes.

Our next question will come from Bonnie Herzog of Goldman Sachs. Please go ahead.

Alright. Thank you. Good morning. I just had a quick question on guidance. You know, based on your update, it still implies an acceleration in Q4 versus Q3. And then just, you know, thinking about that in the context of, you know, softer consumption trends, just wondering if there could be further risk there or just, you know, maybe what gives you the confidence that things might accelerate a bit in Q4 versus Q3? Thanks.

Good morning, Bonnie. You're right. We are planning for a wide outcome in Q4, which is reflective of the comments I just made in terms of market growth assumptions. That really is the highest level of variability that we see. In the current guide, as I had in the prepared remarks, has a wide range from 0.5, I think, to 4.5 in the next quarter. Is indicative of the uncertainty we see from a consumer behavior standpoint. The one uncertainty we believe that has impacted us in Q3 that is no longer part of the range that we're providing is inventory. We feel that consumption is now moving again in line with inventory consumption is moving in line with shipments. So no inventory destabilization in the quarter. But we also don't assume that that inventory that we lost in Q3 will come back because we believe it's an outcome of the consumer shifting into channels that are more inventory efficient. So the guide for the quarter is wide. We believe it appropriately reflects the range of outcomes we see and appropriately has risk protection for that range.

Our next question will come from Mark Astrachan of Stifel. Please go ahead.

Jeff, thanks and good morning, everybody. I wanted to go back to your commentary, Andre, about the shifting consumer in terms of where they're purchasing. You called out club. You called out more mass channels. I don't think that's especially new. But I guess are you seeing acceleration in the most recent quarter as sort of one and then two, if not directionally new, meaning that the consumer has been shifting to Walmart or Costco or club channels, in general, does that change the way that the company approaches selling into those channels, you know, from a price pack or volume versus price mix standpoint? You know, has that evolved over the last couple of years? How do you see it kind of changing from here, especially in the context of what you called out more recently? Thank you.

Good morning, Mark. No. You're exactly right. The trend is not new. We've been seeing this shift into large box retailers, online, and club for a number of quarters, and we've been talking about it. And so our portfolio, as you rightly say, is well-positioned to play with the consumer moving and maybe accelerating the move a little bit the past quarter into those retailers. Our brands are well-positioned. Our sizes and price points are adequate, and we get great support across the entire trade landscape. So we're not worried about it. What I think maybe some of the elements that have accelerated that is a little bit less support in the drug channel because of the difficulties in the drug channel, and that accelerates the move into some of the other channels we're talking about. But as you rightly say, I don't think it's a fundamental shift other than it gives us, I think, more clarity to explain why we see an overall inventory reduction in quarter three. And why we believe that inventory will likely not come back because as we see more business from those channels and those retailers, they tend to be more inventory efficient. Which is really the only structural element where it's relevant. Our brands are positioned well in all the channels, and that's part of the job. We have to make sure we're there wherever the consumer decides to go.

Our next question will come from Andrea Teixeira of JP Morgan. Please go ahead.

Thank you. Good morning. So, Andre, a clarification on the $1 billion to $1.5 billion impact that you quoted from tariffs. Is that I'm assuming obviously that's an annualized impact and most related prices such as raw materials sourcing from that 10% that you talked about exposure to China. And some of the export to Canada that you alluded to. Is there any like, when we think about then if that's correct, the real question that I have is that at the midpoint of that impact, let's say, $1.25 billion, that would be around 3% of annual cost. And pricing needed to offset that would be broadly one or two points. And you, as you said, you're gonna use productivity as you always had leaned into productivity to offset other inflationary costs in the past. So it does not seem hard to mitigate that from a value accretive, also value accretive innovation that you have. So how we should be thinking more long term or medium term the mitigation efforts that you're gonna have, understandably not in the Q4 fiscal, but going to the medium term.

Good morning, Andrea. Yeah. The $1 to $1.5 billion before tax is the impact that we are estimating based on what we know today. That means the tariff rates that have been announced and enacted both in the US and in all other markets in response to the US tariffs. Exactly as you say, that's about 3% of cost of goods sold. About 140 to 180 basis points margin impact. The point this is not an average discussion, though. Right? Because the impact is on certain SKUs, on certain brands, and certain category-country combinations. So when we average this out across the globe, the numbers that you quote are correct. If you look at certain market category combinations, the numbers in terms of pricing are way more significant that we would have to take net of what we believe we can deliver in productivity and other mitigating factors. So that's exactly the work that teams are doing now. And that's why we keep all of the tools on the table. We will start with productivity. We will look at sourcing changes and formulation changes, which typically take longer. We will look at pricing with innovation, and we will look at straight pricing. All of those elements are on the table. And we're working through them right now. But it's important to understand this is an average global number. The number that you have by SKU, by category, by brand, by market, is very different, and that's where the decision needs to be made. Right? That's what the consumer will see, and that's where we need to make the interventions. But at an aggregate level, it's manageable. We'll just need to work through the details across the portfolio, which is exactly what the team is doing.

The next question will come from Olivia Tong of Raymond James. Please go ahead.

Great. Thanks. Good morning. My question is also around the pre-tax tariff impact, so the $1 billion to $1.5 billion. And if you could just compare contrast to the $160, $170 in Q4, was there some forward buying or other factors that are resulting in a smaller impact in Q4 versus your anticipated full-year run rate? And then just following up on that, wanted to know a little bit more in terms of the pricing plans to mitigate the tariff impact because the categories that sound like they're hardest hit, for example, like tissue towel, are categories that have seen a more substantial deceleration and typically have significantly higher private label exposure and competition overall. So as you think as the team do their work in terms of trying to figure out how to go about pricing, if you could just talk in terms of the specifics around categories, that would be great. Thank you.

Good morning, Olivia. The Q4 impact of $100 to $160 million BT is just one month. Because the way the tariffs flow, they are an inventory cost, so they flow through our variance holding policy, which means we really only have one month of impact within quarter four. So then you take that times twelve, you get straight to the $1 to $1.5 billion before tax that we are quoting. Look. On your pricing plans, what you're describing is exactly the discussion we have on every pricing move. There's commodity effects, there's foreign exchange rate effects. Now there's tariff effects. So working through exactly what is the right plan, by brand, by market, what combination of pricing over what period of time is the right answer. That's a very complex exercise, and it really can't be answered at a market or at a category level. So let us do the work. And as we do that, it will be reflected in our guidance range. This is not new to us. This is what we do. And generally, we are doing it well.

Our next question will come from Robert Ottenstein of Evercore ISI. Please go ahead.

Great. Thank you. A couple of follow-ups. First, in the press release, I believe you stated that in China, you were taking pricing in skincare. So I'd like to understand a little bit, you know, the logic behind that given that it's a tough market. And what gives you the confidence to get that price and is it in fact sort of strategic pricing that you would need to be higher, you know, to get the, you know, the high-end consumer interest? So that's first. And then second, look to understand a little bit more about how from your perspective, the major retailers are thinking about what's going on, you know, with the, you know, significant changes in trade policy, how they are thinking about their suppliers, in that context, their suppliers' supply chains. You know? Are there any indications that they are, you know, looking to change, you know, who they're working with given various people's supply chains, and are they looking at private label differently? You had mentioned that private label continues to be flat or trending down, you know, is that because the consumer for whatever reason doesn't want private label? Because, you know, the brands are marketing so well and the value is so strong, or are the retailers, at least in your categories, deemphasizing private label? And what's the logic behind that? And maybe in that context, touching on diapers. Thank you.

Good morning, Robert. China skincare pricing, just a very quick answer, is behind innovation. We have strong innovation out on Olay. We talked about the super-premium innovation on SK-II. And that's just congruent with the business model. You innovate, you price, and you provide better value and better outcomes for the consumer and drive market growth. I won't speak for retailers, Robert. Many of the aspects of the question you asked I think are better asked of our retail partners. What I will tell you is that our vision of partnering with our retailers as we talked about supply chain 3.0, integrating our supply chains because we are close in terms of manufacturing location, warehousing locations, to their supply chains, I think is an advantage that played out in pre-COVID, throughout COVID, throughout the inflationary period where sourcing became more difficult and more expensive. And I don't expect that to change. I think we appreciate our retailers' willingness to engage with us and build a better supply chain. And I think they appreciate our ability to provide supply chains that are stable, reliable, and cost-efficient. And I think that that is the focus for us. I won't speak to their private label strategies. I think we will see them articulate that and play it out. What our job is to provide the best possible branded offering in the store, which is why we continue to focus on investment innovation across both the product as well as go-to-market and supply chain.

Our next question today will come from Kevin Grundy of BNP Paribas. Please go ahead. Kevin, your line is live and may be muted.

Rookie mistake. Sorry about that. Boy, guys. Andre, question on enterprise markets here, which have slowed a bit. Can you just comment broadly? And I know some of this is China. We've talked about the Middle East before. But what was really sort of the key growth driver for the company now has slowed pretty precipitously. Can you comment on industry growth rates in key enterprise markets? How much of this is slowing at? How much of this is industry-specific versus how much of this might be more Procter-specific because we don't have a great deal of granularity on that? And then sort of more forward-looking as we think about fiscal 2026, what is the company's sort of expectation, broadly speaking, in terms of growth rates for enterprise markets? So any color there would be helpful. Thank you very much.

Morning, Kevin. If you look at the growth rate of enterprise markets in our portfolio, it has been, you would say, it has been a great contributor to the company results. 6% last year, 15%, 10%, so a great run. The market dynamics are different by region. As I mentioned before, Latin America we feel very good about. The market growth rates are stabilizing. We are doing well within the key markets. So I continue to see North America contributing to high single-digit growth rates to our portfolio. Enterprise markets in Europe are heavily impacted by Turkey. And you've seen the situation in Turkey both from an economic standpoint and from a political standpoint. That continues to weigh on enterprise markets. But if you look outside of Turkey, again, growth rates are stabilizing, and I feel good about our ability to continue to drive growth at average portfolio rates or above from Europe enterprise markets. And then the last region, Asia, Middle East, Africa, within the portfolio, the biggest driver continues to be the Middle East. But if you look at markets like India, we are profitable, and India is driving mid-single-digit growth very nicely. We have local production on the ground. We have R&D capability on the ground. The market gets better every time we look at it. So again, we feel very solid about growth opportunity there. But it's enterprise markets. They are volatile by default. That's why we manage with them as enterprise markets. And the same volatility we see at the moment in our focus markets for sure is to be expected in enterprise markets. So I won't give you a 2026 guide. I would tell you the same thing I've mentioned before. If there's any conclusion from the current visibility, it's gonna be a wide range.

Our next question today will come from Kaumil Gajrawala of Jefferies. Please go ahead.

Guys. I guess a couple of things. There's so much conversation about macro. But I recall, the innovation pipeline was so much heavier in the back half than the front half of this year. So is with everything that's going on and whether it's macro or tariffs, that sort of thing, is it slowing your, you know, the pace of innovation rollouts or expectations from contribution of those innovations? Suppose I say that in the context of sometimes when the consumer's under pressure, they tend to not want to try new things. I'm just wondering if that sort of changes the calculus on your plans for rollouts.

I don't think it does. As we said, we are committed to continue to drive innovation into all categories. And for us, we continue to believe it's the most important driver of category growth and therefore getting that incremental consumption. We've highlighted it as a big opportunity in focused markets, both Europe and North America. I think the trick here is simplicity of the proposition. What you don't see us do generally is try to drive SKUs for news and make the category more complex. What we're trying to do is restage propositions and be very clear on what the incremental benefit and incremental value for the consumers supported by our retail partners. We do that right, it is category accretive. And, again, you heard us talk many times about few complex and simplifying the shopping experience for consumers. And you're right. Now is the time more than ever to go down that path and work with our retail partners to ensure that all the noise that is irrelevant for the consumer as expressed by being a small fraction of the sales while being a bigger part of the shelf, all that noise needs to go away. So the consumer can more clearly see the benefits of the strong innovation that some of the biggest brands are bringing to market.

Our next question will come from Robert Moskow of TD Cowen. Please go ahead.

Hi. Thanks. Andre, I wanted a little more clarity on the commodity inflation guidance. It stayed the same at $200 million. Is that including the tariff impact or not? I think that's the first question. And then also, you know, we've noticed that resin prices are down a lot since the start of the year, probably in the mid-teens related to crude oil. Is it possible as you head into fiscal 2026 that there actually is this crude oil benefit that flows through and helps reduce the cost of the tariffs that hit your P&L?

Morning, Robert. The commodity inflation number that is quoted, the $200 million, is excluding the tariff impact. So for clarity, we kept it separate. So we see a $200 million impact from commodity inflation and a $160 million gross impact from tariffs, and that impact for next year is $1 to $1.5 billion BT. Again, gross impact of tariffs. The commodity impact for next year, I won't comment on. We always forecast that spot. So whatever the spot is at that point in time when we lock our plans for next year will be the underlying guidance. And if anything, I'll give you the same answer. The range will be wide.

Your final question will come from Korinne Wolfmeyer of Piper Sandler. Please go ahead.

Hi. Good morning. Thank you for taking the question. Wanted to touch a little bit on how you feel about the broader agility of your supply chain and how quickly and easily could you shift things around to try and mitigate the impacts here in more of a near term? And then, also, can you just touch a little bit on what your conversations with both your suppliers and also maybe the retail partners have been on the potential to kind of help absorb those tariff costs? Any context there would be great. Thank you.

Good morning. Yeah. The first part of the answer I'll give you is we are, I think, in the favorable position that the majority of our supply chain is close to our consumption. We've made those investments very deliberately over the last seven, eight years. We invested more than $10 billion just in the US to locate production close to the US consumer, create jobs, and I think we're seeing the benefit of that, which was enabled by a more competitive tax environment in the US. So we're starting from a good place. Supply chain changes require certainty. We don't want to make short-term sourcing changes or short-term formulation changes unless we know what the environment is we're dealing with. So we're really waiting for certainty at this point in time for us to make decisions because those decisions are generally a, they have lead time of multiple months, sometimes years. And b, reversing them have similar lead times. So any knee-jerk reaction doesn't make a whole lot of sense. On our conversations with retail partners and suppliers, I won't comment. They are ongoing in any environment. And, again, we had a lot of volatility over the last six, seven years. So, certainly, the communication lines are always open. And, again, you see our plan develop over the next few months as we get closer to the year and hopefully have a bit more visibility. That concludes the call for today. Thank you for your time. I hope you see and feel our commitment and our conviction that the business model, the strategy across the portfolio we've chosen, the focus on superiority, the focus on productivity, the strength of our organization, has us both committed and convinced that we will be able to deliver on algorithm over a two to three-year period while maintaining investment in the business for growth with our retail partners and the benefit of consumers in the near term and the midterm. That conviction will not change. And we will manage our business in the short term and the midterm along those lines. Thank you for your time today, and we'll be available for any other questions you might have. Have a great day.