A reader wrote in this week to ask whether Procter & Gamble is a good stock. Here is the honest answer from a desk that owns it, delivered the only way an honest answer can be: by showing you the invoice.
The Quarter and the Warning
Procter & Gamble gave a soft outlook for its new fiscal year, as it expects to take a $1 billion hit from higher costs related to the Iran war. The maker of Crest toothpaste and Pantene shampoo also logged a lower profit in its latest quarter, as higher costs and sluggish sales weighed on its bottom line. Like many consumer-facing companies, P&G is navigating a combination of price-sensitive shoppers and higher costs for fuel and other supplies.
“As we enter fiscal ’27, we continue to expect the environment around us to remain volatile and challenging,” Chief Financial Officer Andre Schulten told analysts Wednesday. The stock closed down 1.8% on the day.
Fourth-quarter profit came in at $3.04 billion, or $1.26 a share, down from $3.62 billion, or $1.48 a share, a year earlier. The decrease was driven by higher selling, general and administrative costs, which more than offset a slight uptick in sales. Adjusted earnings per share were $1.43, compared with estimates of $1.41 according to analysts polled by FactSet. Sales ticked up 2% to $21.2 billion, missing estimates of $21.38 billion; the company attributed the growth to foreign exchange and rounding effects. Organic sales, which strip out acquisitions, divestitures and currency, were flat — rising in the beauty segment but falling in health care and in baby, feminine and family care.
What $90 Brent Costs a Soap Company
Expenses related to the conflict in the Middle East are driven by raw materials, energy and transportation. P&G’s guidance assumes the current state of the conflict remains the same, with fighting continuing and the Brent crude oil price staying around $90 a barrel. Along with higher commodity costs, the company is facing freight surcharges, inflation from suppliers, and force majeure fees related to the conflict.
For the year ahead, P&G expects adjusted earnings per share will be flat to up 3%, to about $7 at the midpoint, compared with analysts’ forecast of $7.02. It projects sales growth of about 1% to 3%, implying sales of about $88.77 billion at the midpoint against a forecast of $89.4 billion. Earnings per share in the current first quarter are likely to be down 5% or more from the prior year, with most of the war’s impact felt in the first half of the new fiscal year.
Management said it deliberately left room in its guidance range for more softness in consumer demand. Right now, executives said, shoppers are looking for maximum value and are more discerning. That is the sentence to underline, and we will come back to it.
The Pairing, Written Out
P&G sits on the July 17 reinforce list next to Coca-Cola (KO) and Clorox (CLX) because defensives are the ballast of the tilt we carried into this Fed. This quarter is the bill for that ballast.
Look at what the two halves of the book did to each other this week. P&G pays $90 Brent — a billion dollars of it, named in a press release. Somewhere else in the same book, Chevron (CVX) receives it. That is not a flaw in the construction; that is the pairing doing its job. The staple absorbs the war cost, the major collects it, and the client owns both sides of the invoice. If you hold only one side, you are not diversified — you are betting on a ceasefire, or against one.
It also explains why we size energy the way we do. The hedge is not there to make money in a good year. It is there to send a check to the part of the portfolio that is writing one. This week you can see both entries in the same ledger, dated the same day, and that is the cleanest demonstration of the idea we are going to get for a while. The other side of the argument — that China can flex crude demand enough to cap the price — is in this edition’s Heard on the Street, and it deserves reading next to this one.
A reader asked us this week whether P&G is a good stock, so here is the honest answer from a book that owns it: the ballast is doing exactly what ballast does, which is sit there and get heavy when the water gets rough. The $1 billion is the visible price of a defensive tilt that has otherwise had a very good month.
Action: HOLD Procter & Gamble (PG) at weight; the miss to watch is volume, not oil — if price-sensitive shoppers trade down inside the categories, that is a demand problem no ceasefire fixes. The beauty-segment strength and flat organics say we are not there. HOLD Coca-Cola (KO) and Clorox (CLX) alongside it, and read the swipe data for the other half of the consumer picture.
- PG · Procter & Gamble · hold at weight · watch volumes
- KO · Coca-Cola · hold · July 17 reinforce list
- CLX · Clorox · hold · July 17 reinforce list
- CVX · Chevron · the other side of the same invoice
Related from this edition: the oil thesis, stress-tested · the consumer kept swiping through all of it