Procter & Gamble's Margins Stay Firm: Is Premiumization Paying Off?

The Procter & Gamble Company’s PG fourth-quarter fiscal 2025 results pointed to steady margins, even amid global volatility, and highlighted the effectiveness of its premiumization strategy. Despite a decline of 70 basis points (bps) in the gross margin in the quarter, the company reported a 150-bps expansion in the core operating margin, fueled by significant productivity improvements and disciplined reinvestment in innovation and demand creation. PG's ability to grow core EPS by 6% year over year despite tariff headwinds and weak category growth in some markets signals that its strategy of focusing on product superiority and value at all tiers continues to pay off.

A key driver behind this performance is PG’s commitment to “irresistible superiority” across five critical vectors: product, packaging, brand communication, retail execution and holistic value. Examples include the successful launches of Pampers in China and the SK-II LXP line in the prestige skincare segment. These products, positioned in the premium and super-premium tiers, gained significant market share by offering clear performance benefits that justify higher prices. This indicates that even in more cautious consumer environments, PG's high-end offerings are resonating, particularly when backed by strong innovation and marketing.

Through its two-year restructuring program, focused on portfolio simplification, supply chain optimization and organizational agility, PG is creating headroom for further investment in its premium strategy. While consumer trade-down and category commoditization remain risks, especially in North America, the company is addressing them through innovation across all price tiers, such as Luvs in Baby Care and Tide Simply in Fabric Care. Ultimately, PG’s premiumization strategy appears not only sustainable but also a core pillar of its growth algorithm.

PG’s Peers: How CL & CHD Are Sustaining Margins

In an increasingly inflationary and volatile macroeconomic environment, leading consumer goods companies like Colgate-Palmolive Company CL and Church & Dwight Co., Inc. CHD are turning to premiumization as a key strategy to preserve profitability. 

Colgate’s steady margins in second-quarter 2025 highlight the payoff from its premiumization strategy. The company maintained a gross margin of 60.1%, with pricing actions and productivity gains partially offsetting these challenges. Premium innovations, particularly in high-margin products like Hill’s Prescription Diet and elmex toothpaste, contributed to a favorable product mix, helping cushion the impact of cost inflation. This resilience reflects Colgate’s ability to drive margin stability through brand strength, premium offerings, and disciplined cost management.

While Church & Dwight's adjusted gross margin declined 40 bps year over year in second-quarter 2025, the company offset much of the pressure from inflation and tariffs with productivity gains and a favorable business mix, including contributions from higher-margin acquisitions like Touchland. Strategic brand investments and pricing initiatives, alongside growth in premium offerings such as THERABREATH and HERO, continue to reinforce profitability. CHD’s balanced portfolio and innovation-led growth continue to support margin stability.

PG’s Price Performance, Valuation & Estimates

Procter & Gamble’s shares have lost 8.8% year to date compared with the industry’s 5.6% dip.

From a valuation standpoint, PG trades at a forward price-to-earnings ratio of 21.73X compared with the industry’s average of 19.46X.

The Zacks Consensus Estimate for PG’s fiscal 2025 and 2026 EPS indicates year-over-year growth of 2.3% and 6.3%, respectively. The company’s EPS estimates for fiscal 2025 and 2026 have moved downward in the past seven days.

Procter & Gamble currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research