Procter & Gamble Q2 Earnings Beat Estimates, Organic Sales Flat Y/Y

The Procter & Gamble Company PG reported second-quarter fiscal 2026 results, with earnings per share (EPS) surpassing the Zacks Consensus Estimate and sales improving year over year. Results benefited from growth across major segments, led by improved pricing and a favorable mix.

Procter & Gamble’s core EPS of $1.88 per share was flat from the year-ago quarter but beat the Zacks Consensus Estimate by a penny. Currency-neutral core EPS also fell 2% year over year.

The company has reported net sales of $22.21 billion, up 1% year over year. The Zacks Consensus Estimate for sales is currently pegged at $22.29 billion. On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), sales remained flat year over year, driven by an increase of 1% from pricing and a neutral impact of mix, offset by a 1% drop in volumes.

Our model predicted year-over-year organic revenue growth of 1% for the second quarter of fiscal 2026, with a 1.2% gain from pricing, a 0.6% rise in the product mix and a 0.8% drop in the organic volume.

Procter & Gamble Company (The) Price, Consensus and EPS Surprise

Procter & Gamble Company (The) price-consensus-eps-surprise-chart | Procter & Gamble Company (The) Quote

The company’s net sales growth for the fiscal second quarter was led by a year-over-year increase of 5% each in the Beauty and Health Care, 1% in Fabric & Home Care, and 2% in Grooming, offset by a 3% decrease in Baby, Feminine & Family Care. Organic sales rose 4% for Beauty, 3% for Health Care and flat for both Grooming and Fabric & Home Care segments. Meanwhile, organic sales fell 4% for the Baby, Feminine & Family Care segment.

Shares of PG rose 2.2% in the pre-market session following the second-quarter fiscal 2026 results. This Zacks Rank #4 (Sell) company’s stock has lost 7.7% in the past six months compared with the industry’s 9.6% decline.

Procter & Gamble's Q2 Margins

The core gross margin declined 50 basis points (bps) year over year to 51.9%, while the reported gross margin fell 120 bps. Currency rates aided the gross margin by 0.2%. The currency-neutral core gross margin contracted 30 bps to 52.1%. Gains from gross productivity savings of 160 bps and pricing benefits of 50 bps were more than offset by 120 bps of negative mix, 60 bps of product reinvestments and 60 bps of increased tariff costs.

Core selling, general and administrative expenses (SG&A), as a percentage of sales, edged up 20 bps from the year-ago quarter to 26.4%. The currency-neutral core SG&A rate increased 40 bps to 26.6%. 

The core operating margin fell 70 bps from the prior year at 25.5%. On a currency-neutral basis, the operating margin declined year over year by 80 bps to 25.4%, mainly driven by the adverse currency effect. The operating margin included gross productivity savings of 270 bps.

We expected the core gross profit margin to decline 50 bps year over year in the fiscal second quarter to 51.9%. The core SG&A expense rate was anticipated to increase 30 bps, whereas core operating margin projection suggested a decline of 80 bps to 25.4%.

Peek Into PG's Financials

Procter & Gamble ended second-quarter fiscal 2026 with cash and cash equivalents of $10.8 billion, long-term debt of $25.6 billion and total shareholders’ equity of $53.3 billion.

In second-quarter fiscal 2026, the company generated an operating cash flow of $5 billion. The adjusted free cash flow was $3.8 billion for the three months ended Dec. 31, 2025, with an adjusted free cash flow productivity of 88%.

Procter & Gamble returned $4.8 billion of value to its shareholders in the fiscal second quarter, including $2.5 billion in dividend payouts and $2.3 billion in share buybacks.

PG's Fiscal 2026 Guidance

For fiscal 2026, Procter & Gamble anticipates delivering another year of organic sales growth, core EPS growth and sturdy adjusted free cash flow productivity. Hence, the company reiterated its guidance for fiscal 2026. The company expects year-over-year all-in sales growth of 1-5% for fiscal 2026, while organic sales are expected to be flat to up 4%. Its all-in sales are expected to include a 1% benefit from currency rates, as well as from acquisitions and divestitures.

PG revised its outlook for fiscal 2026 net earnings per share growth in the bracket of 1-6% from the prior guidance of 3-9% compared with fiscal 2025 net EPS of $6.51. This reflects increased non-core restructuring charges in the year. The company has maintained its fiscal 2026 core EPS growth in the band of flat to 4% growth versus fiscal 2025 core EPS of $6.83. This outlook equates to a range of $6.83-$7.09 per share, with a mid-point estimate of $6.96, or 2% higher.

The company now anticipates commodity costs to be neutral for the fiscal year. Foreign exchange is likely to be a tailwind of about $200 million after tax and increased tariff costs are forecast to be roughly $400 million after tax for fiscal 2026. It expects a net headwind of about $250 million after-tax from modestly increased net interest expense and a higher core effective tax rate compared with the last fiscal year. Together, such impacts equate to a headwind of 19 cents per share for fiscal 2026.

Procter & Gamble still expects capital expenditure to be 4-5% of net sales in fiscal 2026. Adjusted free cash flow productivity is estimated to be 85-90%. The company intends to pay out dividends worth $10 billion and repurchase shares worth $5 billion in fiscal 2026.

Here’s How Better-Ranked Stocks Fared

United Natural Foods UNFI is a key distributor of natural, organic and specialty food and non-food products. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for United Natural Foods' current financial-year sales and earnings indicates growth of 2.4% and 167.6%, respectively, from the prior-year levels. UNFI delivered a trailing four-quarter earnings surprise of 416.2%, on average.

Celsius Holdings, Inc. CELH, which specializes in nutritional functional foods, beverages and dietary supplements, starches and nutrition ingredients, currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Celsius’ current financial-year earnings is expected to rise 54.3% from the corresponding year-ago reported figure. CELH delivered a trailing four-quarter earnings surprise of 5.4%, on average.
    
McCormick & Company MKC, which is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank of 2. MKC delivered a trailing four-quarter earnings surprise of 2.2%, on average. 

The Zacks Consensus Estimate for McCormick’s current financial-year earnings indicates growth of 2.2% from the year-ago number. 

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

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