Q & A Highlights

Q: How do you assess the challenges in markets like China and the Middle East, and what do you say to investors concerned about potential deceleration in stronger markets like the US and Europe? A: Andre Schulten, CFO, acknowledged the challenges in China and the Middle East but emphasized the strength in the US, Canada, Europe, and Latin America, which constitute 85% of sales. These regions are growing at 4% on a high base, with strong innovation expected in the second half. The volatility is mainly due to China and the Middle East, and the guidance range reflects this uncertainty.

Q: Given the worsening trends in some markets, how confident are you in the stability of the 85% of your business not impacted by external factors? A: Schulten expressed confidence in the stability of the 85% of the business, citing consistent growth in North America and Europe, and stabilizing trends in Latin America. He highlighted the company's focus on innovation and consumer engagement as key drivers for continued growth.

Q: Can you discuss the sustained category growth in the US and the market share momentum? A: Schulten noted that the US market is expected to grow 3% to 4%, with P&G aiming to grow ahead of the market. He highlighted a $5 billion growth opportunity by serving underrepresented consumer groups and emphasized the importance of innovation in driving market growth and share gains.

Q: How do you view the impact of easing commodity costs on gross margins, and are there any factors that might offset this improvement? A: Schulten stated that productivity will continue to drive gross margin progress, with a significant contribution from cost savings. While some easing of inflation is reflected, the majority will benefit the latter half of the fiscal year. SK-II's performance also impacts gross margins, and its stabilization will help.

Q: What are the expectations for improvement in China, and how do recent stimulus measures affect your outlook? A: Schulten indicated that predicting recovery in China is challenging, but sequential improvement is expected as they annualize past impacts. The guidance range accounts for potential outcomes, with stabilization in China and the Middle East being key to reaching the midpoint of guidance.

Q: How do you address the divergence in performance across categories, particularly in beauty and baby care? A: Schulten highlighted strong innovation in fabric and home care, which drives growth. In beauty, excluding China and SK-II, North America and Europe are performing well. For baby care, innovation and trading consumers up are key strategies to counteract declining birth rates.

Q: How are you managing market share performance, and what are the greatest areas of opportunity for improvement? A: Schulten emphasized the importance of growing markets and increasing household penetration. He noted positive share trends in the US and Europe and highlighted innovation as a key driver for capturing market share.

Q: Can you provide an update on disruptive innovations like Olay Melts and Tide Evo? A: Schulten reported that both Olay Melts and Tide Evo are performing well in test markets, with promising consumer reception. The company is progressing with industrialization to enable national launches, and further details on disruptive innovation will be shared at the upcoming Investor Day.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.