The Procter & Gamble Company (PG) Earnings Call Transcript & Summary

Good morning, and welcome to Procter & Gamble's quarter end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial -- Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its Investor Relations site www.pginvestor.com, a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's President and Chief Executive Officer, Shailesh Jejurikar.

Good morning. Joining me on the call today are Andre Schulten, Chief Financial Officer; and John Chevalier and Keri Cowan, Senior Vice President of Investor Relations. Before I hand over the call to Andre to begin the earnings portion of this call, I want to make a few comments on the second press release we issued this morning announcing Jon Moeller's upcoming retirement from the Board of Directors and the Procter & Gamble Company. I want to thank Jon for his many years of tireless and steady leadership at P&G having served in key roles, including Executive Chairman, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. In fact, some of you first interacted with Jon when he became P&G's Treasurer in 2007. Jon's strategic vision has been instrumental in shaping the company P&G is today, including his leading role in focusing P&G's portfolio and in designing our current operating structure. We have benefited from his unwavering courage and its profound care for this institution and its people. Again, I want to thank Jon for his 38 years of dedicated service to the company and congratulate him from all of us on a very successful career. Now I'll hand the call over to Andre to lead the earnings discussion.

Thank you, Shailesh, and good morning, everyone. I'll start with an overview of results for fiscal '26 and the fourth quarter, Shailesh will add perspective on our strategic focus areas and capabilities. And we will close with guidance for fiscal '27 and then take your questions. For fiscal '26, we met our core objectives despite unexpected headwinds. We managed through a very volatile environment and delivered organic sales, core EPS and cash returned to share owners within our initial guidance range. We built plans to return the business to consistent growth across all categories and regions. We stabilized global market share, and we identified and are deploying the capabilities needed to create the CPG company of the future to generate long-term growth and value creation, progress in light of many challenges. Looking closer at fiscal '26 on a semester basis, we delivered an acceleration in top line results up about 1 point in the first half and 2 points in the second half. We also saw improvement in market share in the second half despite some softening in underlying market growth as inflation increased. Positive trends we will build on in the new year. Moving to the details. Organic sales grew more than 1%, volume was up modestly. Pricing added a point at mix had a neutral. This includes around 40 basis points of headwinds from product form and go-to-market portfolio choices. Growth was broad-based across regions and categories. 9 of 10 product categories held or grew organic sales for the year. Hair Care and Skin & Personal Care each grew mid-single digits. Personal Care, Baby Care, Home Care, Fabric Care, Feminine Care, Grooming and Oral care were each in line to up low singles. Family Care was down for the year. All 7 regions held or grew organic sales. Focus market organic sales were up 1% for the year. North America and Europe focused markets each grew modestly. Greater China organic sales were up 4% for the year. Enterprise markets were up 4%, led by Latin America, with 6% organic fit growth. E-commerce sales increased 6%, now representing 20% of total company sales. 26 of our top 50 category country combinations held or grew share for the fiscal, 5 of 10 product categories held or grew share globally. In aggregate, global value and volume share trends improved in the back half exiting the year flat. Core earnings per share were $6.89, up 1% in fiscal '26. Core gross margin declined 40 basis points and core operating margin decreased 70 basis points. $2.8 billion before tax of productivity improvement across cost of goods sold and SG&A, enabled an increase in investment in superior products, packages and brand communication to drive market growth. On a currency-neutral basis, core EPS was in line with prior year, and core operating margin decreased 60 basis points. Adjusted free cash flow productivity was 100%. We increased our dividend by 3% and returned over $15 billion of value to shareholders, over $10 billion dividends and $5 billion in share repurchase, consistent with our guidance at the start of the year. For the fourth quarter, we saw improving global share trends versus prior period, but headline results were impacted by trade dynamics in the U.S. and the spike in input costs. Organic sales increased modestly, rounding down to in line versus prior year. Adjusting for brand product and go-to-market restructuring impacts, organic sales for the ongoing business were around 1% for the quarter. 2% when adjusting for 1 point of pull forward into Q3, consistent structural growth of 2% across the second half of the year. As we mentioned before, the growth trajectory hasn't been and won't be a straight line quarter-to-quarter. Volume rounded down to flat for the quarter. Pricing at Mix were also neutral for the quarter. 6 of 10 product categories held or grew organic sales, Personal Health Care, Hair Care and Skin and Personal Care each grew mid singles. Baby Care, Fabric Care and Grooming, each were in line to up low singles. Home Care, Femcare, Family Care and Oral Care were down for the quarter. 5 of 7 regions held or grew organic sales. Focus markets were down 1% for the quarter. Organic sales in North America were down 1% versus prior year. While consumption and market share of P&G brands improved through the quarter, there was a notable disconnect between sell-out and sell-in with sellout or consumption at plus 2% and sell-in at minus 1%. The shift of Amazon Prime Day to late June versus early July drove an increased merchandising spending recognized in the quarter. Retailer inventory reductions, including the pull forward into last quarter also contributed to the 3-point gap between sell-out and sell-in. European focus markets organic sales were down 1%, like the U.S., P&G sales trailed consumption due to inventory dynamics and value interventions. Greater China organic sales grew 4%, another quarter of positive momentum heading into fiscal '27. Enterprise markets grew 4% for the quarter. Europe enterprise markets grew 5% and Latin America organic sales were up 4%, and the Asia Pacific, Middle East, Africa Enterprise region grew 3%. Global aggregate market share was in line with prior year, 23 of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.43, down 3% versus prior year. On currency-neutral basis, core EPS decreased 5%. These results include approximately $0.06 of higher costs driven by spike in energy, transportation and material costs, which were mostly offset by tariff refund receipts. For gross margin was in line versus prior year, and core operating margin decreased 130 basis points. Very strong productivity improvement of 460 basis points with healthy reinvestment in innovation and demand creation. Currency-neutral core operating margin decreased 130 basis points. Adjusted free cash flow productivity was 133%. We returned $3.5 billion of cash to shareowners in this quarter, $2.6 billion in dividends and roughly $900 million in share repurchase. In summary, a year of progress and foundational work to enable accelerated future growth. Momentum with consumers is improving, results within guidance in a challenging macroeconomic and geopolitical environment, progress, but more work to do. Now I'll pass it over to Shailesh.

Thanks, Andre. I'll start with a few thoughts on results before moving to our strategic focus areas. As mentioned, we delivered the fiscal within our going-in espite a very challenging operating environment. It's encouraging that growth was broad-based with all 7 regions and 9 out of 10 categories growing or holding organic sales. We exited the year holding global share with trends improving in the second semester. This was visible in our largest market, the U.S., as we measure the percentage of top customers growing or holding share. We had less than 10% holding or growing share in the first half of the fiscal year and improved in the second half to around 50%. We will build on the improvement to further accelerate growth in the U.S., our largest and most profitable market. I am pleased with the progress we are making and confident the plans in place will continue to drive the momentum. The organization is focused on the right strategic choices and executional plans to deliver sequential progress we expect going forward. We remain committed to the integrated growth strategy as the road map for growth and value creation. This strategy starts with the port of categories where performance matters, in performance-driven categories, we must deliver irresistible superiority across product package, brand communication, retail execution and value. We continue to drive productivity with multiyear visibility to fund innovation and demand creation and to mitigate cost headwinds. Constructive disruption is key to stay ahead of and to create emerging trends and opportunities in our fast-changing industry. Finally, an organization that is fully engaged, enabled and excited to serve consumers and to win in the marketplace. P&G's point of difference, our competitive advantage comes from outstanding integrated execution of these strategies across all activity systems in the company and from anticipating what capabilities are needed next to delight our consumers. We continue to believe the strategy is right. but we must continue to adapt to the world that is changing around us. As I shared in CAGNY, there are 3 notable landscape changes defining the path ahead. These include media fragmentation, the changing retailer landscape and inflation. We are making multiple interventions to address these changes. The first is to have a deeper more complete connection with consumers. Nothing matters more than putting the consumer first in everything we do. The second is transforming brand building, adapting how we build awareness of our brands and benefits drive consumer engagement and reduce time and steps from awareness to purchase. The next is building holistic partnerships with retailers across the entire value chain, not just in their traditional role as merchants. This is critical as we see the convergence of retail and media, including digital commerce and how shopping agents and AI-based search will affect our consumers shop. And finally, we need a stronger core and a bigger more. One of P&G's biggest strength is our portfolio of leading brands, the core of our business, we need to make sure the score is healthy and growing through impactful innovations that elevate the superiority of the brand and represent a good holistic value for consumers. These interventions are aimed at improving the vectors of superiority to win the consumer value equation. We know we are winning the consumer value equation when we are growing users of our brands. The simplicity of linking superiority to user growth in this way increases the urgency to adjust the vectors as needed versus assessing each element individually. When we get the equation right, we accelerate growth, growing users, leading market growth and growing market share, sales and profit. Here are a few examples. Greater China Baby Care continues to lead the growth of the premium and super premium segments behind consumer insight-driven innovation. Chinese parents want only the best for their baby, softness, comfort and dryness. The China team translated that insight into a diaper using materials to deliver skin comfort and protection wrapped in a unique soft-feel package that conveys superiority at first touch. The result is double-digit organic sales growth in each of the past 6 quarters and nearly 5 points of value share over this period. Latin America cough and cold is winning through deeper consumer connection. The team identified the insight that consumers perceive products as more effective when they deliver a sensorial experience. Consumers need to feel the immediate sensation of relief to believe the product is working. The Vicks team brought this insight to life through upgraded packaging, brand communication and retail execution that made fast relief more visible at every touch point. The result, Vicks became the #1 cough and cold brand in Latin America with mid-teen organic sales growth and over 1 point of share growth while growing the category this year. Germany Pantene is a great example of a brand team responding to media landscape shifts to transform brand building and accelerated growth. The team increased investments in social media and influencer partnerships including top German beauty opinion leaders and hair experts and culturally relevant brand events, including Oktoberfest and Berlin Fashion Week to meaningfully improve brand superiority awareness. The result was a fourfold increase in influencer content and tripling total reach. Pantene grew new users, resulting in value sales growth of 14% and with value share up 50 basis points versus a year ago. To win on social media and e-commerce platforms that combine lifestyle content with online shopping, shifted the focus from a functional message to a lifestyle approach. The team connected SKI to the moments and routines, consumer cares most about. -- encouraging them to live lighter, freer and more authentically backed by product performance that delivers on its promise. As more consumers brought SK 2 on their life journey, brand buzz, ROI and business growth naturally followed. Over the past year, SK 2 facial sense treatment led discussion volume on a top social commerce platform, improving the brand discussion ranking by 5 spots to third place. SK2 has grown organic sales double digits over the past 6 quarters with value share growth. P&G Mexico elevated its strategic partnerships with retailers by transitioning from short-term tactical planning to longer-term joint business planning. They focused on having winning consumer propositions and aligning objectives and priorities across P&G and each of the retailers creating shared accountability for winning with the consumer. As a result, P&G strengthens its position as a preferred supplier to these customers, achieving record levels of in-store visibility and support behind our joint priority growth initiatives. These efforts enable P&G to capture 60% of category growth approximately twice fair share. P&G Mexico grew organic sales high single digits and gained over 1 point of value share in fiscal '26. Mr. Clean continues to innovate on its core proposition and solve more cleaning jobs across the home. Brand has launched new innovations on the Magic Eraser platform that improves the longevity with the denser form and a wider microscrubbing structure that now lasts 2x longer. The packaging was updated to reflect room and mess specific users. At the same time, we launched Mr. Clean Shower and Tubscrubber to address Home's #1 most disliked clean core. Mr. Clean, Shower and Tubscrubber delivers a quicker, easier and deeper clean with the power of the Magic Eraser, a sturdy group handle built-in squeegee and a pivoting head for hard-to-reach areas. The result, Mr. Clean is winning consumers and driving category growth, delivering 18x its fair share of the bath cleaning category growth since launch. Site is a great example of both core and more. Tide did their biggest upgrade in over 2 decades on the original Tide liquid detergent, which represents more than 1/4 of Tide detergent users, significantly improving the product for the same price. Since launch, Tide original liquid has gone from declining to high single-digit growth. On this side of the business to get that inflection is simply amazing and gives me tremendous confidence of what can happen if we activate the core much better. Tide biggest strength is tide. So this is a very powerful example of strengthening the core. A great example of a bigger more is Tide evo. Tide evo represents the biggest innovation in laundry crafted by concentrating active surfactant ingredients into a mixture that is spun into individual fibers. This sophisticated process ensures each functional fiber delivers the part from cleaning performance of Tide while also enabling the creation of the convenient tie Evo unit dose form with no plastic packaging and no extra water. This new-to-the-world formulation and assembly process is proprietary to P&G and protected by over 50 granted patents, making it a truly unique technology. National expansion of Tide evo is on track with full-scale launch support planned this fiscal year. To further accelerate scale and innovations, campaign ideas and executions like the ones we just shared, we are creating our vision of the CPG company of the future. P&G team are now scaling advanced capabilities in 4 areas that build on our unique strengths. Platforms developed over many years now being fully activated across the company. First, branding transformation. Our teams are rapidly evolving how we connect with consumers in a more fragmented media landscape and translate those connections to real-time retail actions. We are scaling AI-enabled tools and integrating workflows from creative development to media activation to continuously improve content effectiveness and always on consumer engagement. By bringing together the voice of our brands, trusted experts and consumers themselves we can more effectively reach the right consumers in the right context at the right moment and optimize what works to drive trial, awareness, loyalty and ultimately, growth. Second, transforming internal work processes, leveraging data capabilities to free up the organization to focus on winning externally. Teams are using integrated data platforms, AI capabilities and programmatic shelf does built on top of our fully stocked data lake to work faster and deliver better outcomes. Processes that once required multiple touch points and handoffs are now being automated, improving both speed and quality. In many cases, time for discovery to execution is moving from weeks to hours, freeing up more time for higher value work focused on winning with consumers. Third, taking our existing R&D advantages to a new level by leveraging a unique set of innovation capabilities, substrate technologies, formulaic chemistry, devices and biology, to deliver breakthrough solutions in every part of the business. Technologies like AI-enabled molecular discovery will drive faster acceleration and more powerful integration of innovation capabilities leading to faster growth. And finally, supply chain capability. Supply Chain 3.0 is driving a more complete system connection from purchase signal to our production planning and material ordering to ensure consumers find the product they want each time they shop. We know how to digitize and automate our operations and more importantly, we have qualified a financial framework to generate strong returns on these investments. Full activation of these advanced capabilities will enable speed and execution, smaller teams and a stronger connection to the consumer to enable the next S-curve of growth and value creation for P&G. We are confident in the short-term progress we are making and excited about the mid-to-long term as we leverage our strengths and unique capabilities to set us apart from the industry. Now I'll pass it back to Andre to cover guidance.

Thanks. As we enter fiscal '27, we continue to expect the environment around us to remain volatile and challenging, from costs to currencies to consumer competitor retailer and geopolitical dynamics. We believe our going-in guidance for fiscal '27 prudently reflects these current market realities. On the top line, we currently expect the markets in which we compete to deliver local currency value growth in the range of 1% to 3% for the year, with the current run rate roughly in the middle of this range. Our objective is to grow organic sales modestly ahead of the underlying growth in these markets. However, recall our guidance includes a 30 to 50 basis point headwind from brand, product form and go-to-market restructuring. Taken together, our guidance range is for organic growth of 1% to 3% versus prior year. The low end of the range protects for additional softness in underlying market growth rates, the high end would require acceleration in underlying market growth rates and market shares. Our bottom line outlook is broadly consistent with top line with core EPS growth of 0% to 3% versus fiscal '26 core EPS of $6.89, and this guidance equates to a range of $6.89 to $7.11 per share, $7 at the center of the range. This outlook includes a cost headwind of approximately $1 billion after tax, driven by higher raw materials, energy, transportation costs and other premiums resulting from the conflict in the Middle East. This estimate assumes an effective Brent crude oil price of $90 a barrel. This is a combination of actual prices since March '26 and future contracts through Feb '27, which approximates the average price that will flow through our P&L in fiscal '27. It's also in the ballpark of current spot prices. You'll likely note that our current estimated cost impact is the same as we projected last quarter, but at a somewhat lower oil price. This is due to a larger impact from the noncommodity elements of the supply chain like ocean freight and trucking surcharges, supplier inflation and force majeure premiums. Most of this impact will be felt in the first half of fiscal '27 as those materials were produced when the underlying oil price was above $100 a barrel. While we don't typically provide quarterly guidance, we estimate the cost dynamic will cause Q1 EPS to be down 5% or more versus prior year. We expect the foreign exchange headwind of approximately $50 million after tax and approximately $150 million of higher net interest expense after tax. We are also forecasting $150 million after tax of lower nonoperating income. We estimate that our core effective tax rate will be approximately 20%, in line with prior year. Combined input costs, foreign exchange rate items and items below the operating line will be roughly a $1.4 billion after tax of earnings headwind in fiscal '27 or $0.56 per share, 8% of fiscal '26 core EPS. We expect capital spending will be 4.5% to 5.5% of sales. We are forecasting adjusted free cash flow productivity at 85% to 90% for the year. We expect to pay over $10 billion in dividends and to repurchase approximately $5 billion in common stock combined a plan to return $15 billion of cash to shareowners in fiscal '27. The guidance range reflects the continued acceleration toward our long-term algorithm. It is a balanced outlook between top line and bottom line despite significant cost pressure early in the year and reflecting current market realities for consumer demand. We will maintain strong investment in the business balanced by a strong productivity program with an intent to improve results semester-by-semester and year-by-year. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, tariffs, major supply chain disruptions or store closures are not anticipated within the guidance ranges. Now I'll hand it back to Shailesh for closing thoughts.

Thanks, Andre. Fiscal year '26 was a year of foundation building. The operating environment was even more challenging than expected, we delivered another year of organic sales and core EPS growth, and we continued our long-term record of returning high levels of cash to share owners. In fiscal '27, we will solidify progress and continue to build the technical, organizational and operational capabilities to have P&G lead as the CPG company of the future. We continue to believe the best part to sustainable balance growth is to double down on the strategy, stronger integrated execution to delight consumers with superior products at a superior value. We're driving interventions to improve near-term results and we are building the technical and operational capabilities to create the CPG company of the future. Our investments for growth will be balanced and funded with a strong productivity program. We are pleased with the progress we are making. It will be a straight line as the past few quarters have shown, but we are building momentum with consumers, and we are excited about the long-term opportunities ahead. With that, we'll be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Dara Mohsenian of Morgan Stanley.

So it's at a little more than a year since you guys announced your restructuring and you put the plans in place to reinvigorate organic sales growth and get P&G back to outperformance versus the category -- you obviously gave some examples of progress today with your interventions, although we're not at outperformance you have with flat share in the quarter. So just looking forward to fiscal '27 what are the biggest areas or initiatives left to put in place versus what's already been implemented organizationally in your restructuring? And just as you think about fiscal do you think you can consistently return to sales outperformance versus your categories at some point? Any thoughts on timing there? And just the line of sight there as we move through the fiscal year from an org sales standpoint.

Thanks, Dara. Let me start with how we are feeling about the progress we've made so far. And it is consistent with the way we have felt over the last few months. We are happy with the recovery on the consumer front, particularly our performance relative to getting new users in. I think it is best reflected in the fact that our global share has now stabilized and has been flat for 3-month periods. I think that is a big step forward. More recently, 1 month doesn't tell you much, but the last volume share month inflected and volume share is sometimes a good predictor of the status on user growth. So from that point of view, we feel very pleased that we are getting on track to winning with consumers, which is the most important. Now when I then break it down and we see when we started interventions and whether that progress has happened, we feel that's what gives us confidence. So if I start with China, where, as you know, coming out of COVID, it was a depressed market, it was a tough competitive environment, and the results were not great. We are now growing share in China for the first time in 15 quarters, driven by fundamental changes we made similar to what we're doing in the company. We changed our market. We changed our brand building systems and processes and capabilities. We changed the kind of innovation we were doing because we knew we were in a lower growth market that needed us to drive market growth. So we've seen that begin to inflect in China. China closed AMJ, as you know, at 4%, ex exits that happened in China even better. Similarly, if you look at Latin America, where after our decision to change the go-to-market in Argentina and other choices, we've been really happy with the way our business has performed across every single metric, but probably most exciting 3 years back, less than 10% of that business was growing users. Today, over 55% of that business is growing users. Then even if I go to some of the markets in the Asia, Middle East, Africa region, which was pretty badly hit in the earlier Middle East crisis. Those have come back well. Last quarter, we closed at 3%, ex exits closer to 6%. Even a market like Gulf has had a very tough 4-, 5-month period with disruptions, we are growing share across all time periods. That market had less than 5% of the business growing users last year, they are now at 60% of the business growing users. So a pretty quick bounce back on some of these markets. Turkey is another good example of that. Europe focus, the market has been depressed, but we have been growing share even in a very difficult situation there. U.S. is the market where we probably started the interventions closer in, in time line. We are beginning to see progress there, as Andre covered in some of the results, and we saw it very clearly in consumers. Even in the U.S., we saw a blip in the volume share in the recent time period. So we feel good about the progress we are making in the U.S. as well. And as I said, Dara, with you and others at CAGNY, in U.S., we are doing our interventions in a way that will be category growth driven. So they depend on innovation and retail partnerships. So some of the time lines on that will be -- many of those interventions happen in the front half of the next fiscal or in the July, December -- so we expect that momentum in the U.S. to pick up during the semester, behind some of these interventions. So overall, long-winded answer, but I feel good about the progress we are making I feel confident based on the interventions we made and the time lines we have that we are on track. And which is why even though our cell and sell-out was mismatched, I feel good because as long as the consumption is strong, I'm very confident that we will have strong sales.

Your next question will come from the line of Lauren Lieberman of Barclays.

Great. So you called out that 23 out of 50 country category combinations held or grew share. I think there was a step back sequentially. I know that you guys have talked about the progress won't be linear. But I was curious within that number, what percentage actually grew share within that. And then the global roll up of flat, I understand there's a mathematical dynamic on that, but it has to some of the bigger categories versus the smaller ones within that that 50 grid. So I guess notwithstanding the comments on being pleased with progress, what are maybe some of the bigger category country combinations that still need more attention, more change and sort of time line on the next 6 to 8 months of getting some of those interventions in market.

Laura, let me start and then Shailesh can jump in. I think the most important turn that we see is enterprise markets continuing to progress. If you look at enterprise markets growth, consistently mid-single digits. So Asia, Middle East, Africa, 3% growth. If you exclude the market restructuring, Asia, Middle East, Africa growing 6%. Latin America continuously growing share across categories over time periods. Europe enterprise market is growing 5%. So enterprise market strength, I think, is sustained, visible and broad-based. From a market dynamic, the most important share growth component we needed was China to return to share growth because it is our #2 market, and we've done that very decisively. We're back to leading share on Baby Care. We're leading -- we're growing share on FemCare growing share on Fabric Care. So it's broad-based. And honestly, the recipe that the team is executing will result in the same dynamic across categories. But already, the majority of the categories in China is on share growth. The rest will follow. Europe continues to grow modest value share in a very difficult environment, up 20 basis points of value share. And the more the more impacted categories from a headwind standpoint, if you want to go there. Fabric Care, for example, is 1 where competition has increased. And we are reestablishing competitiveness in Europe. So that's a big priority for the European focused market team. In the U.S., I would really point to the progress we're making at the customer category level. We quoted in the script that we had 10% of the top customer brand combinations growing in the front half. We're now up to 50%. And we expect that to continue to accelerate over the next 6 months, which will solidify the share growth that we're seeing early signs of in the U.S. as well. The more longer-term recovery trajectory, Baby Care. But for example, on diapers on tape diapers where we adjusted competitiveness from a value perspective, we saw the immediate adjustment in shares. So we're back to volume and value share growth on tape diapers. But we have an opportunity to drive that strength through the entire portfolio. That's where the innovation plan is focused and you see the next wave of innovation coming here over the next couple of months. The other big one in the U.S. Family Care, that's more of a category dynamic and I feel very good about where family care is going. Again, we won't be talking about the future innovation and launches, but it gives me confidence that we have a very clear view of where we lost users and most importantly, very clear data on how to regain those users over the next 6 months. That's kind of the run about. But what Shailesh is saying, I think, at the essence is core, we're building out that matrix of category, country, customer share growth, and we're increasing the number of greens. Will it be linear? No. But do we have confidence that we exit next year with strong solidified share growth? Yes.

I would just say, Lauren, to that question in addition to what Andre said is we've made big inflections on some of them. I think Fabric Care, U.S. being one of those and we are building further momentum there. And where we have gaps, we have very clearly identified the category customer combinations that need to inflect and have very clear time bound plans on those being executed over the next 6 months.

Your next question will come from the line of Steve Powers of Deutsche Bank.

Great. As I look through the last several quarters, it strikes me that much of the volatility and surprise that we've seen has come either from the U.S. or from focused markets in Europe. And so I guess my question is, how would you assess the underlying fundamentals of those markets as you think through the puts and takes and as you assess the outlook for fiscal '27. And is there anything that you've experienced midst all of that volatility and surprise that has altered the way you approach go-to-market plans interfacing with retailers, plans with the consumer. Just anything that you take away from recent experiences that informs any kind of different tactic as you think about fiscal '27?

Steve, let me start and then maybe Andre has a few points to add. But I would start and say, fundamentally, these 2 markets, both North America and folks Europe, the market growth has slowed by 1 to 2 points over the past 12 to 18 months. And I think at the core, where we have large shares and the category growth slows down, the impact is greater. At the same time, we actually think there is a much bigger opportunity in the next 5 years for growth in these 2 markets. If I just take the U.S. and you we look at where is the maximum value we can add on top and bottom line, it is still the U.S. Whether it is something like Power Oral Care, where even if we get to somewhat reasonable penetration levels compared to our Europe benchmarks, it's like the equivalent of creating a new India business for us. So we see a good $5 billion to $10 billion growth opportunities over the next 3 to 5 years in both U.S. and Europe, just fundamentally by addressing some of these huge growth opportunities that still exist. A lot of this will require a higher level of innovation, and that's what I was referring to when I was talking about China. When China slowed down, it wasn't about driving in the train anymore. We needed to drive the train. And I think in U.S. and Europe, we are modifying and adjusting our innovation plans to ensure that they are capable of lifting the category growth rates. Tide evo is an obvious example, but I would take the combination of Tide evo and Tide liquids work because Tide's going to get some of the new growth and get some of that new performance and innovation-driven growth but improving significantly the performance of our existing propositions has a lot of market growth and share growth opportunity for us. So when something like Tide liquids grows it is still a 50-plus percent premium to the market average. So when Tide liquid starts growing, the market gets lifted and Tide liquids will grow if we can really strengthen the value proposition, which is what we have done. So I think our biggest growth opportunities moving forward are still in U.S. and some of the Europe focused markets. It does require a higher bar on innovation, and that is what we are preparing ourselves for. Andre, anything?

Your next question today will come from Andrea Teixeira of JPMorgan.

I wanted to just go back, and you've said many times, the value proposition that you're applying, particularly in the U.S. And we're seeing the increase in marketing spend, in particular, to investments and price reinvestments, as you called out. I was curious to see there's -- I understand a timing situation. And I wanted to see if you can parse out that timing impact. And then more importantly, how have you learned in terms of those reinvestments and then the volume that you could get from those initiatives? I mean, I think you called out side, you called out some of the Baby Care -- but if you can explain to us and then perhaps think about how you're embedding those recoveries and market share recoveries into your guide?

Andrea. Look, I level up a second here. But we are very diligent in telling the categories to remain fully invested in the business. And I think that is what is allowing with the right interventions, the turn of business that you see in many parts of the world. And what is driving and fueling the share -- the volume share growth we see now in the U.S. and the increasing number of customer brand combinations that are winning. How that investment is structured really depends on the specifics of the business. In Baby Care, we needed a short-term intervention on key price points because we are being out-promoted and outpriced Making that intervention while painful, is absolutely necessary so that the innovation that is launching and the brand communication can be effective, and you see the results on tape diapers. In other categories, it is a channel price point conversation, for example, where we might have expanded our absolute cash outlay premium in club on certain categories too far. That requires correction and is being invested in. In other categories like in type, the example Shailesh mentioned, it's about product performance but not changing the price point, but improving the value that way. All these interventions are very targeted and very carefully constructed and embedded in the guidance range that we've given you. We also will continue to invest in media. I firmly believe we have a big opportunity to increase the effectiveness of our media spend. Because of what Shailesh is continuing to describe the fragmentation of the media landscape, I don't think we're at 100% effectiveness potential, and that's the investment we're making in media capabilities. So maybe a bit broader answer, but it's the combination of these interventions that are required to get to sustainable share growth -- and therefore, back to algorithm are embedded in the guidance ranges that we have given you. And if oil and the Middle East situation holds at the assumption, we feel comfortable with the midpoint of the guidance range because we're very certain that the interventions and the execution that we control will deliver. The uncertainty in the guidance range in our mind, entirely results from Middle Eastern oil and underlying consumer strength.

Your next question will come from the line of Chris Carey of Wells Fargo Securities.

I wanted to pick up on this line of thinking actually around investment levels. Andre, I'm getting to a bit of gross margin compression for the full year, which let's just say, if I put it all together, would imply SG&A doesn't grow a whole lot this year, if anything, maybe it can be a bit lower year-on-year, so implied to have good operating leverage this year. And I guess I'm mindful that last year was a kind of significant investment year ended at historically high levels for investment. Coming into this year, you have a restructuring and overhead initiative, which is going to drive a lot of savings -- number one, is my premise somewhat logical around a bit of gross margin compression and thereby SG&A doesn't grow a whole lot. And if so, can you just give us a sense of how you would view the full investment suite over the last several years, say, fiscal '26 in and kind of the underlying levels that you would foresee once you normalize for some of these overhead savings and some of the automation initiatives that you have, just to give us a sense of that indeed, you will be going into fiscal '27 with full and robust investment levels behind your brands? I know you had kind of expanded on it to Andrea's question, but I'd like to dig just a bit deeper, if I could.

Yes. No, it's good to dig a little deeper here, Chris. I think the -- the setup for the year we just started is good. We have the productivity savings now flowing through. Obviously, half of the headcount reduction has been executed. The major market restructuring has been executed. So the benefits of that from a cost perspective will start to flow through into fiscal '27. We have remained fully invested in the business. And if you look at our media spend and advertising spend over the last 3 to 5 years, the only way we've gone is up and as I said, I don't think note of Shailesh believes that 100% of that spending has been effective, and we will work to increase the effectiveness. And I think you'll see a combination of effectiveness flowing through to the P&L and effectiveness, increasing the efficiency of the spend. And therefore, we maintain full support to the brands but we can be more selective on the tools, the platforms and therefore, the spend levels that we will apply. The third component that is part of the plan is very strong productivity on the cost of goods side. We've delivered record cost of goods productivity in the fiscal we just closed, and we will do that again, if not more. And that's our path to get to a reasonable EPS outcome with the cost headwinds we talked about, while maintaining investment in the business and providing the value balance that consumers need to give us the share growth that we want.

I'd just add 1 point to that, Chris, which is that we are looking at investment depending on the brand, the country and the category in a few different buckets. So there's investment in brand building, which shows up as advertising costs -- there's investment in product per often like we did on Tide to significantly improve value. So we are very, very choiceful and disciplined of where we are investing for that brand in that country to get the maximum lift -- so we've gotten much better in our learnings over the past 12 months on what is the right mix of spending across these different investment is to get the biggest lift on the business. So in some businesses, it may be just fundamentally increasing media because of their brand building plans. In some, it may be strengthening the product investment. And so we have built a much better understanding over the past 12 months of where that balance and mix needs to be.

Your next question will come from the line of Peter Grom with UBS.

Great. I guess I wanted to ask just on the 1% to 3% organic sales outlook. And Andre, you mentioned what the low end versus the high end. But on the high end, you mentioned you assume some acceleration in category growth and partner share performance. But I think historically, category growth alone would already put you towards the higher end of that range. So can you maybe just unpack what's embedded from a category growth standpoint in the outlook? And then I guess just related, there's a big disconnect between consumption and shipments this quarter. Is this dynamic now in the rearview? Or said another way, should organic growth and consumption be more aligned moving forward.

Thanks, Peter. So if I dissect the guidance on the top line range, the base assumption is category growth at the current levels we're seeing in the market, which is that's a global number. So 2% value growth is the center line. To deliver 2% organic sales growth within that would require us to grow about 2.5 points because we have about a 40, 50 basis points headwind from the market restructuring on the top line that is still carrying into this year. So this would mean if the categories grow at 2%, and we have underlying growth of 2.5% that would require share growth but would leave us at the midpoint of the range from an organic sales growth standpoint. Our objective, as you can tell from the commentary, both Shailesh and I are making is to remain fully acted in the business. and to drive share growth and drive market growth. So we're building business plans that shift us obviously more significantly above market. But the construct assumes 2 points, which means in the middle, 2.5 points of growth for us, net of 50 basis points of headwind from restructuring would mean share growth at a minimum, okay? On the shipment versus consumption, listen, it's the dynamic happens in Europe and the dynamic happens in the U.S. And the simple answer is we need to get to stronger growth in both regions. So those dynamics don't impact us as much. That's the macro answer that we would give our teams. We have to deliver stronger growth and that's what they are working on. The dynamics are slightly different in the U.S. It is truly pull forward of inventory quarter-to-quarter, which sometimes happens very late in the quarter like in quarter 3 and then shift of big events like Prime Day, which changes the way we have to recognize the trade investment that's what happened in Q4. I think the combination of the 2 was unusual. Therefore, the effect was bigger than we would typically see. But I fully expect there's going to be always has been some level of trade inventory volatility quarter-over-quarter. We just need to get back to 3-plus percent growth, so it's less visible. In Europe, the effect is more linked to trade dynamics and negotiations. There are different negotiation windows with retailers and fewer retail will apply some pressure in the negotiation period, which then shifts inventories. We generally catch up also that dynamic will sustain. So how do we make that go away? We have to accelerate growth in Europe.

Your next question will come from the line of Filippo Falorni of Citi.

I wanted to ask about the price and promotional environment in your categories. It seems like you have 2 opposite forces on 1 hand. You talked about the price intervention to trade to improve market share. On the other side, you have cost inflation, which typically will result in higher pricing. So can you help us understand how you balance the 2? And one of your European competitors talked about second half of calendar year being a little bit more price driven. So maybe can you help us understand within your organic guidance the contribution from volume, price and mix in '27.

I don't see a fundamental change in our growth algorithm. But you're right, we see promotion increasing back to pre-COVID levels. Europe volume on promotion has increased by about 5 points in the most recent read. There's a little bit of seasonal dynamic in there. There's a little bit of FIFA-related promo activation in there, which you would have heard. So we would expect both the U.S. and Europe to over time return to pre-COVID promotion levels. We're almost there. So I don't think that's a dramatic shift, but promotion will continue to drive some level of growth. Our plan assumes that we continue to price with innovation. We mainly use promotion to drive trial. We use innovation to drive a regimen from high penetration categories into low penetration categories by co-promoting. When we talk about the customer plans, in the U.S., there is a very careful construction of the business plan that includes promotion as it comes to those objectives. But we don't believe that promotion in any way, shape or form is a way to build the business or to acquire users on a sustainable basis. So we'll use it where it makes sense. It's not part of our desired business building strategies. We expect the return to pre-COVID level. We're cognizant of that, and we have built that into our assumptions. But we will continue to drive price/mix in this year like we've done in 20 out of 21 previous years.

I think just to add to what Andre said. Specifically, we think with innovation, there will be -- we believe we will be able to have a consistent price mix and a more balanced volume price and mix growth composition of sales. If costs remain elevated, we typically do see promotion levels go up or down. So if costs tend to be high, we will see promotions ease off a bit. But as Andre said, it's generally trending towards the pre-COVID levels. But at a fundamental level, we have an innovation plan that will allow us to price but still deliver great value to the consumer.

Your next question will come from the line of Bonnie Herzog of Goldman Sachs.

I just had a high-level question on China. I was hoping for a little more color on your business. in the market and then your expectations for category growth in the region and maybe expected improvements to your share this year? And then I guess, finally, are there any changes you're making to your innovation and our strategy in light of the consumer and macro?

Yes. I would say given where the consumer is, we are definitely raising the bar on innovation. We are making sure that the performance is very noticeable. That's important not just from where the consumer is today and becoming much more discerning. But also as we see the future of brand building and we see the environment there, real difference in product performance shows up in authenticity and plays positively when you look at path to purchase through social media or e-com or other such tools. So we continue to raise the bar on what is expected out of innovation because not only is the consumer more discerning on value, and that's been a critical piece of it. But moving forward, we also think it's a multiplier to the brand-building efforts.