Procter & Gamble (PG, Financial) is experiencing significant selling pressure after lowering its FY25 outlook due to the impact of tariffs. The company, known for brands like Tide and Pampers, reduced its adjusted EPS forecast by $0.21 at the midpoint, citing challenges from FX rates, commodity costs, and tariffs. The largest tariff-related impact comes from raw and packaging materials, as well as some finished products from China, which, despite accounting for just over 10% of PG's total imports, significantly affects earnings.
The trade policy issues for PG are similar to those faced by Kimberly-Clark (KMB, Financial), which also reduced its 2025 EPS outlook. Although changes to reciprocal tariff rates on China are expected, uncertainty remains high, causing investor concern and pushing PG shares to a 52-week low.
- PG's Q3 results were mixed, with adjusted EPS of $1.54, marking its ninth consecutive beat, but revenue fell short at $19.78 billion, a 2.1% decline year-over-year. Organic sales increased by 1%, while reported volumes decreased by 1% and organic volumes remained flat.
- Grooming was the only category with positive reported volume growth in Q3, while Beauty showed organic volume growth. Health Care and Fabric & Home Care saw a 1% drop in reported volumes, and Baby, Feminine & Family Care experienced a 2% decline in both reported and organic volumes.
- Prices rose by 1%, which may lead some consumers to reduce spending or choose lower-cost alternatives. However, PG continues to grow or maintain market share in the U.S. and Europe, as private label shares decline, especially in Europe. PG plans to leverage brand loyalty to potentially increase prices in the coming months.
- PG revised its FY25 adjusted EPS outlook to $6.72-6.82 from $6.91-7.05 and revenue to $84.04 billion from $85.72-87.40 billion, indicating stagnant year-over-year growth.
CFO Andrew Schulten emphasized PG's strategy of achieving balanced growth over two to three years, acknowledging that this goal may not be met every quarter. PG is currently focusing on price hikes to position itself for long-term growth, despite the risk of consumers shifting to private labels or reducing spending due to inflationary pressures. The lack of clarity on tariffs is causing investors to avoid PG, a trend that may continue in the near term.
