Okay, so the voice has spoken. That's our cue, we can begin. I'm so excited to have not one, but both John Moeller, CEO of P&G, and CFO, Andre Schulten, with us this morning at the conference. So an embarrassment of riches on stage this morning, so thank you both for making time to be here with us. I'm gonna start out kind of short term, and then we'll get into some of the bigger picture long-term topics, so first, Andre, I was hoping you could discuss the current operating environment, any notable changes to category growth in aggregate or in any given market since we last all spoke in July.
Sure. Morning, everyone. I would characterize it as stable versus what we had discussed in the last earnings call. We see global market growth in dollar terms stabilizing at around 2%-2.5%, so below the long-term average that we expect of 3%-4%. Significant slowdown versus the past 12 months, but in line with what we had expected, and therefore, built into our guidance ranges. If you look at North America, 2%-3% dollar growth in the most recent reading, last two to three months, also stabilizing. Very little volume growth, mostly price mix driven. Europe, flattening out, so Western Europe, Europe Focus Markets, in our terminology, flat at the moment, and Enterprise Markets still growing.
China, still, from a market growth perspective, the most challenging one, but I feel good about our trajectory on the China business. We've added the first positive dot in the last quarter, and I feel we're on a good path there. So overall, I think in line with expectations, but not an easy environment to operate in. Job number one, two, and three is drive innovation, drive market growth in volume terms and in dollar terms, so that's really what we need to focus on.
Okay, great. And then if we turn to focus on your own business, I know you mentioned China. So some positive momentum heading into fiscal 2026 with a strong 6.18. Have sales trends remained on an upward trajectory since then, or is it a kind of a pull-forward effect on that 6.18 purchase behavior?
China is always volatile, so we feel good about all the interventions that the team has made. We talked about this before. We kind of changed the entire go-to-market setup, the distributor network, we changed our innovation, we changed our media approach to streamline our portfolio. All of that is paying dividends, so I feel good about where we're headed. Whether it's gonna be right above that zero line or still slightly below, I think is to be seen, but I think we're moving into a positive trajectory, would be my summary on China.
Okay, and then let's switch to the U.S. So first was just on retail inventory adjustments. Is that still a dynamic we should be expecting to impact selling?
I don't think it's gonna be a big dynamic. There's always swings in retail inventory these days, one way up or down. There's retail initiatives on supply chains, which move inventory from one quarter to another. But I think we expect relatively stable inventory levels in the U.S. at the moment. But there are some big initiatives out there from retailers that might swing Q1 to Q2. We're still working through that, so we'll update as we close quarter one. I don't expect any negative inventory adjustments in Q1.
Okay.
Just for awareness, we still have the channel shift dynamic which doesn't change inventory levels, to Andre's point, at any individual retailer, but can change the overall days of inventory in the system. So that'll continue to be a dynamic.
And then the promotional environment in the U.S. started to pick up in spots when we spoke in July. I'm curious if that's continued, and are there areas where you're deciding to make changes to regain competitiveness from that standpoint?
In aggregate, the level of promotion, both frequency and depth, is relatively stable, but it is accelerating at a slower pace. You do see pockets where there's heavy promotion investment in order to try to gain short-term volume share. We're watching that closely. It generally doesn't result in value share gains or sustained value share gains or value creation, either for the retailer or the player. So we believe our strategy to not react in the short term, but to continue to drive integrated superiority across our propositions, is the right answer because we have no interest in gaining share in a contracting category. It just doesn't make sense. So we'll watch it closely.
Now, if we don't like the outcome and the trajectory, we'll intervene, but I wouldn't call out any major promotion intervention at this point in time, so we'll stick with our strategy and execution right now.
Okay, great, and then sort of on the flip side, right, you have plans to take price on 25% of the U.S. portfolio, given the tariff environment, you know, and I think it's at a mid-single-digit range, if I remember, so is there a risk that when there's little category growth, there's little volume growth, and the competitive environment's heating up, you know, how should we think about the risk behind that, those planned price increases?
I don't think it's an outsized change versus the operating environment we generally have been in. We typically have one to two points of price mix contribution to our top line. Consistently, it's been that way for almost twenty years. Most of the pricing we're taking, we're pairing with innovation. So to the consumer, it will look like an upgrade, and therefore, innovation-based pricing. It won't be, you know, just cost or tariff-based pricing. So I do feel that the propositions that we have, combined with the pricing we're taking, is reasonable. We're assuming normal elasticity, so I think it's covered within the range we have. I think the biggest question is the volatility on the driver still, but assuming that that environment remains stable, we feel relatively good about where we're going.
There's one exception to what Andre just said, which we need to keep our eye on, that's Canada, where there will be price increases that are tariff-driven. They're labeled as such on shelf, and not all of our competitors have that same dynamic. Many are producing locally, so that's something we continue to watch, but thus far, consumption in Canada. Andre and I were just in Toronto the week before last. Things look good, but it's just something to keep our eye on.
Okay, and then just quickly on Europe, so the June quarter, Europe-focused market offtake, was softening. You mentioned it was flattening out, so that's continued, and do you think Europe can kind of hold that level, or are we worried of it going weaker from there?
No, I think the market is receptive to innovation. We've proven that over the last three, four years, and the innovation pipeline we have across all of our major categories is very strong. That innovation also comes with a typical innovation-based pricing, and there's still some volume growth in Europe. So I think a little bit of volume growth, about half a point, combined with innovation-based pricing and trade-up trajectory, I think, will allow us to return to positive growth in Europe. I think it will trend towards the second half, because of base period effects, et cetera, but I do feel the plan is valid, and I do think Europe has the same potential as the U.S. to continue to drive category growth with innovation, with superiority in the categories we're in b ecause consumers still are dissatisfied with the solutions that exist in those categories, that is not different in the U.S. versus Europe.
Okay.
I was in, last week, Frankfurt, Berlin, Stuttgart, Warsaw, London, Geneva, and would share the same conclusion that Andre just described, as I talked to both consumers and customers. And a lot of the innovation is really driving disproportionately the market growth that does exist within Europe, so that's encouraging from a retailer standpoint as well. So I think we'll be in decent shape there. But as Andre said, more back half loaded.
Okay. You've mentioned tariffs, just in terms of pricing.
Yeah.
So a lot of moving pieces there. It had been a $1 billion impact pre-tax as of July. Things keep changing. So what are you expecting as of today? And then, with that, can you talk a bit about pricing to offset tariffs and how hard it is to dial back pricing that's already been announced to trade, where and when there's a change in tariff policy?
The growth number, so we've talked about $1 billion growth impact.
Right.
That's down to about $700 million-$750 million today. The effect on the P&L between the $1 billion and the $750 million will be limited simply because we assumed for the majority of that delta to be offset by pricing. John was mentioning Canada. The biggest change were the reciprocal tariffs being eliminated in Canada. I think it was announced first on August 22nd. And we had planned to price for that because that was the only way to offset it. So we got the official notifications. To your second part of the question, we got the official notification from the Canadian government last Friday on the 29th , and we announced Tuesday, so a couple of days ago, to the retailers that we rescinded the pricing. So ability to rescind is there. We can execute quickly.
The biggest point here, Lauren, is, as I mentioned, it's the volatility, right? Because what we don't want to do is yo-yo. So we believe that the decision in Canada was the right one. To John's point, this was probably the biggest risk we had, given the size of the pricing and the clear differentiation between U.S. imports and Canadian products. So that was a good development. We can execute quickly, but the big question as we go through maybe other changes is, will they stick or not?
Okay. Just quickly, anything to call out commodities or FX landscape?
Stable.
Okay.
So I think from a macro environment standpoint, to summarize the list of questions you had so far, market growth, not great, but stable. Tariffs, not great, but stable, and FX commodities, also stable so I think we're well within the parameters that we set as we gave guidance, so we're focusing on executing, and again, job number one, two, and three, re-accelerate market growth.
Perfect. Okay, let's switch and talk about reinvestment spending.
Right.
So lots of puts and takes year over year versus 2025, as we talked about. We've got tariffs, soft market trends, below-the-line items, also a headwind. On the other hand, relatively speaking, benign commodities in FX, strong underlying productivity, restructuring savings, which will ramp in the second half, and some incremental pricing. So where does that leave you in terms of the flexibility to reinvest this year?
We built the plan for ability to invest in integrated superiority... We anticipated the market being soft, and we anticipate our need to continue to build moat versus competitive offerings, especially because some competitive offerings will play on price promotion, and again, we don't want to go down that path. So it was critical for us to build that flexibility into the plan, which we have done. The restructuring savings will mostly materialize next year because a lot of the restructuring takes time to execute, the P&L effect will be mostly next year. But we have very strong base productivity. We have the ability and the integration of the innovation pipeline that allows us to support all the big businesses because they have innovation coming. So it's about sufficiency of in-market execution and sufficiency of media support.
I feel very good about where we are, and the number one, two, and three question that John, Shailesh, and I are asking with the businesses is, are you sufficient? Are you sufficient to deliver absolute integrated superiority in your biggest category, country combinations? And if not, what will it take? And I feel good about our financial flexibility to address where we still have gaps within the range we've outlined. We'll be diligent stewards of those investments. We remind people, your name is on each of these recommendations, so we will track whether we deliver. But I think we have a very responsible team that understands the key levers we need to pull. So I think we're putting the plan together.
It also will be back half loaded to a degree because some of the innovation is starting in OND, but the majority will come in the second half.
Just from a macro standpoint, just to leave no doubt in the room, we are committed to lean forward into some of the challenges that Lauren raised, not to step backward. Andre and I, I think, do a good job of a balanced message to the team. Mine is more along the lines I just described. Andre is more along the lines of sufficiency and responsibility, but I just don't want there to be any doubt that I mean, the last thing we're going to do is pull back on investment and innovation and commercialization of that innovation. It goes back to Andre's opening in terms of the priorities one, two, and three, being innovation to restart and continue in the categories where it exists, disproportionate contribution to market growth, which over time, will rebuild shares.
Great. So let's then talk about innovation. So fiscal 2025 was a big year for innovation across the company, every category, most of the big brands. But back in July, in your conference call, when I'd asked about why performance versus the categories had narrowed, you cited some areas where P&G had lost superiority, so I wanted to dig into that a little bit. So first, you know, why do you think that was the case? And second, what are some examples of ways you're working to improve superiority on a category, category-by-category level, just focusing in on the U.S., too?
Sure. You know, we operate, and it's a good thing, in very competitive markets and very competitive industries, and it's not a surprise that competitors, and it's a good thing that they're intent on bringing new innovation to the marketplace as well. And over time, that leads to an ebb and flow in our relative advantage of superiority. The other thing that impacts that is the pricing that we've been talking about. And price gaps open up. We typically lead pricing in many of the categories in which we operate, and it takes a while to understand what the competitive response to those pricing moves is going to be. And during that period, it's not atypical to lose a small amount of share in the categories in which we compete.
The third thing that we're managing is the advent of new competition in some of our categories, primarily sourced from China. You've seen articles relative to baby diapers as an example, and we've got innovation on the way that should put us back in a really good place in the mid and low-tier portions of our portfolio. In terms of innovation, broadly, I think there are a couple questions that I would have if I were you. One is, are you committed to innovation, kind of, at all price tiers? Where we compete, the answer is yes. The best example I can give you on a category basis is laundry, where we have not only Tide Evo that we're working on.
By the way, that's been launched now, Tide Free and Clear versions of Tide Evo have been launched on Walmart.com and Amazon in June, and we're bringing supply up the curve pretty quickly here, and we'll eventually be able to expand nationally. So that's at the high end with a clearly preferred product, very high retrial rates, very high incrementality in the category, very high levels of consumer delight. And then, if you look at the liquid portion of the business, which has become, with the advent of unit dose and Tide Evo, the mid-tier, we have probably our strongest innovation coming to the market later this year. There are innovations on Gain that are coming to the market.
If I look at one other category, just to give you confidence that that's how we're approaching this, if you look at the Power Oral Care, our Power Brush category, with our big, big brand, Oral-B, the main focus of innovation this year is, again, both the high end, continuing to leverage the launch of iO9 and iO10 and at the entry point with iO2, which is designed, it's literally the lowest price item we're bringing to market. It's one of our biggest sources of innovation. It's tailoring the whole brand. It's accelerating trade up from manual brush to power brush, which is a very good thing for us and for consumers. It's a much more efficacious approach to taking plaque away from your teeth.
I could go through the rest of the categories. I won't, but you get the feel for how we're approaching innovation.
Okay, great. You mentioned some of the small brands that are coming out of China, and one thing that we have noticed, and we've been writing about. There are elements of the operating environment that to us is starting to feel a bit like pre-COVID, right? So where the ankle-biter brands are coming back, they're challenging category. You know, you've got challenging category growth, and then you've got, on top of it, small brands that are kinda nipping away again. I guess, does it feel? You can tell me I'm wrong up here. That's fine.
No, no, I would never do that, Lauren.
So I'm just curious if you feel that way, if that's what you're seeing in the operating environment? And if it is the case, what's different now versus what it was like in kinda 2018, 2019, when this was the prevalent market dynamic?
It was a prevalent dynamic from a discussion standpoint, not so much from a dollar growth standpoint. I remember talking one earnings day morning to Joe Kernen on CNBC, and he was asking me about this dynamic, and he said, "You know, the era of big brands is over." And I said, "Joe, if it was true that consumers don't have an interest in large brands, how is it that they're large?" So, if you look at growth rates, you'll see some pretty frothy growth rates on some of the new entries.
If you look at dollar contribution to the category from those items, it's relatively small, and the dollar contribution we can make from a 1% or 2% growth on something like Head & Shoulders or Pantene is much more significant than some of the entry brands. Having said that, we look for opportunities amongst those brands. We bought, for example, Native, I would say, five or six years ago. It was a $50 million brand when we purchased it, largely direct to consumer, e-commerce in the deodorant and antiperspirant category. We closed last year, I don't know the sales numbers exactly, but I'm guessing between $600 million and $700 million, multi-category brand, both e-commerce and traditional retail, and I expect that to continue to grow as we go through next year at very healthy rates.
As I just mentioned, I was in Europe, and that launch is really just getting underway. What I'm not interested in is small brands which are new-to-the-market brands, which don't have a unique positioning that we can't cover with our current portfolio. Native was a good example of something that we couldn't cover. The benefit of naturally sourced and fewer ingredients, kind of a simplicity positioning, was not something our brands were prepared to tackle head-on, and so this was a good opportunity to get in. We'll continue to look for those opportunities, but I would expect the majority, the vast majority of growth, certainly in absolute terms, but also in percentage terms, is gonna be organic core brands that still have lots of room to leverage. Tide is a great example.
I think the only thing I would add, John, is, at the last round of this, these brands were digitally native and knew how to play the ecosystem. We probably weren't. I think that has shifted completely.
Agree.
If you look at our go-to-market system, if you look at our media systems, I think we're probably more advanced and, and have better algorithmic access to buying, better algorithmic access to scheduling, which I think gives us an edge versus where we were in the last round.
Okay, and you mentioned the majority of the growth will come organically. So do you believe you have the right portfolio to get back to algorithm-level growth more consistently?
I generally do, assuming that the market cooperates, and we can grow a small bit ahead of what we expect market growth to stabilize at, which is kind of in the 3%-4% range. We'd be right on algorithm, and the restructuring program gives us both the financial fuel to invest in that and the ability to continue to be, or work towards algorithm on the bottom line as well.
Okay, perfect. Let's talk a little bit about the organizational redesign. You mentioned the restructuring, so the organization redesign elements of this. So, Andre, could you give us a summary first of kind of what's changing? Because it was my understanding that this, like, end-to-end decision-making in the category that's been there for the past decade, so what is it that's changing?
Let's maybe start with what's not changing. What's not changing is the fundamental design on how we run the company. We'll continue to be category-led. That won't change. We continue to run Focus Markets end to end, as you said, Laura. That won't change. We'll continue to run Enterprise Markets on a region basis. That won't change. The opportunity that we see is twofold. Number one, there's a lot of technology, and I'm not necessarily talking AI. We're selling soap, so we're a little bit more basic than that, but there's a lot of technology that can enable us to make people's daily jobs easier and move them to higher-order tasks....
Secondly, the business requires more integrated decision-making because we can't. We're not at a business cycle anymore where you can develop a copy at the beginning of the year, you run the copy for a year, and then you kind of revisit how it did. Decisions in a digital environment where you sell online, you sell omni-channel, requires you to make decisions within minutes, not within days. All of that leads us to believe we need smaller teams, smaller teams with people that have integrated capabilities, that go across sales, marketing, financial understanding, and even digital capability. That's what we're trying to get to, and we're enabling that with elimination and automation of a lot of the internal work that's being done.
So if you think about the company of our size, the amount of work that's being done to extract data and prepare data for decision-making, a lot of that is done by lower-level employees. That can be fully automated. We've built the infrastructure to fully automate that. Forecasting, completely an internal task, much better done by an algorithmic solution than individuals. And focus the smaller teams entirely externally on their key business drivers, on what is important to the business, focus them on the consumer, the retailer. That's the objective we're after. John and I had long discussions on how to do this. Do we build the capability first and fully qualify it, and then try to take the capacity out, or do we do it the other way around?
I think we both agreed it's better to take the capacity out, disable, the organization from running the old way, and then supplement that with the capability coming in. So that's the path we've taken.
And just, you know, building on that, I agree, agree with everything that Andre just said. I think successful organizations in the world, the dynamic world that we're living in, are going to have to be much more fluid. They, they cannot be as rigid as they've been. They can't be as siloed as they've been. We can't have all the internal transaction costs that we have. I'll give you a couple examples, and I'm not picking on anyone, and I'm intentionally stating these in the extreme, but it's just to help you understand what we're working towards. I don't understand what the difference between selling and marketing is anymore in an e-commerce environment, and most companies are structured, we are, to have both as dedicated functions.
And that creates a lot of cost, a lot of transactions, it slows down decision-making, and it prevents true end-to-end, decision-making. You actually have trade support decisions being made separately from brand support decisions. That doesn't make any sense in the world that we're operating in. And if you're gonna have people making those end-to-end decisions, they better know how to do it in a financially responsible way. So the lines between financial decision support and commercial operations start blurring. As Andre said, you need data to operate that way, and you need, facility with data, so that line starts to blur. So the question becomes: How do we structure ourselves for the new reality? And I think there's an opportunity, as if we do that successfully, to dramatically improve decision-making, both the speed and the quality of decision-making.
I think there's an opportunity to significantly reduce cost, which again, we can reinvest in superiority. And most importantly, I think there's a massive opportunity to increase what we refer to as the employee value proposition. How fun are these jobs to do? How much difference can I make as an individual? And that goes up significantly if we can move in this direction. So still a lot of work to do, but you know, I tell our board all the time, "This company has more challenges in front of it than it's ever had. That's the bad news. The good news is we have more opportunity in front of us than we've ever had." And this combination of a rethink of the organization design and supply of data and tools to make good decisions quickly is one of those massive opportunities, in my view.
So I want to touch on Supply Chain 3.0, Andre. So last year, you talked about being at the very beginning of operationalizing this at our conference, including optimizing end-to-end value chains between your own supply chain and that of suppliers and retailers. Just an update on where this currently stands and kind of what's the real unlock once this is completed.
I think the supply team has made huge strides in taking what we defined as a vision two years ago into an aligned plan that is in execution. We have today a plan by business unit that outlines exactly what the technology choices are that we will make as a company to deliver the biggest sources of value unlock in the supply chain. We have aligned the implementation timeline, and we have aligned the financial value creation glide path that each business unit has committed to until 2030. So for the next five years, we have a locked plan. The technology platforms have been developed and are being implemented with key strategic partners at a global level. That allows us to scale both from a capital standpoint and from an operating standpoint. And give you maybe two examples.
One warehouse technology that increases warehouse density by 50%, and that increases throughput 2x-3x That technology is available. It's being implemented, being installed. That will be a significant improvement. Real-time touchless quality being rolled out across all of our manufacturing sites, a significant improvement in terms of quality, but also in terms of throughput and cost structure. We have talked about a dark shift in Gillette, Berlin as a pilot, where we run an unattended shift for four hours, the night shift. John was just there, so he can give a bit more color. But we now have nine pilots that qualifies that same technology and approach across virtually all categories.
So being able to run a dark shift gives us between 15% and 60% of productivity improvement. So just a few examples of this is real, we know how to do it, and it's now in implementation phase by 2030.
So I went to the Berlin plant, our Berlin plant, at two in the morning last week, on Tuesday night. It was an unbelievable experience. There were a couple of people in the room who were there with me. The first place we went to was the parking lot. I couldn't figure out where we were. I said: "What are we doing here?" And they said, "We want you to see the parking lot." I said, "Okay." I said, "But there are no cars here." They said, "Yeah, that's the point. There's no one here." There were more photographers at this event than there were our supply colleagues, and the plant itself was dark.
It was being run entirely through automation and robotics, including the movement of material across the floor, all the way from ingredients to finished product. They asked me when I was done with the tour, would I be willing to film a video for them, and of course I did. The first question they asked is: "What did you experience?" And I said, "I experienced the future." It was truly remarkable, and as Andre said, we're well down the path of enabling this capability to other sites. One other thing that's important about this is the employee morale that's associated with this move is fantastic. We have 88% favorable ratings in our employee surveys from that facility, which are among the highest in the company.
People are thrilled that they get to spend the evenings with their family instead of working, that third shift. It's another example of the tremendous opportunities we have in front of us.
So we only have about two minutes left.
Okay.
But, I probably wouldn't do it.
You can do it.
We've known each other 19 years. Sorry, but I just wonder, as we look back on the Moeller era, CFO, COO, CEO, and still executive chairman to come, so that is, it is not over from that standpoint. John, I'd love you to share with us what you want your legacy to be, and I know Shailesh is in here today with us, but any words of wisdom that you would share with him?
Thanks for asking that question. Big international business is not a me sport, it's a we sport. So I like to think of in terms of our legacy, not my legacy. You made me do this.
It's work.
And I think, you know, the existence of a strategy that we know when executed brilliantly, can succeed in many different environments. If you look at the last seven years since we put the strategy in place, $17.5 billion in incremental sales growth, 84th percentile of the S&P 500, $6 billion in incremental profit, 92nd percentile of the S&P 500. $180 billion in market cap increase as a result of that. That's more value creation than all but one of our competitors created over the last one- and two-century histories of their company. So seven years plays one and two centuries. As a result, the 81st most valuable publicly traded company in the United States, the 22nd most valuable in the world. That's the team's legacy to build on.
The second legacy that any team leaves behind is its successors, and I feel very good about the quality of not just my successor, but the depth of the bench. They work as a team, they're dedicated, they're very, very capable. It's a wonderful group of people. Advice to Shailesh, bring you as Shailesh, bring you to the business, to the plan. Bring your experiences, your knowledge to the business, the plan. But whatever you do, don't go off the track in terms of a massive departure from the strategy. It works. Again, you'll add your own touches and your own executional emphasis. You should do that, but let's keep going.
So with that, we will go to breakout. Please join me in thanking Andre and John, and congratulating John on this next chapter.