The Procter & Gamble Company (PG Quick QuotePG - Free Report) has reported mixed third-quarter fiscal 2025 results, wherein earnings met the Zacks Consensus Estimate and sales missed. The bottom line improved year over year while the top line fell. The company’s organic sales grew year over year, on higher pricing.

Procter & Gamble’s core earnings of $1.54 per share inched up 1% from the year-ago quarter and matched the Zacks Consensus Estimate. Currency-neutral core earnings per share (EPS) also rose 1% year over year.

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The company has reported net sales of $19.8 billion, down 2% year over year. Sales lagged the Zacks Consensus Estimate of $20.3 billion. The sales performance can be attributed to a 1% drop in volumes and adverse currency impacts of 2%, offset by a 1% rise in pricing and flat mix.

On an organic basis (excluding the impacts of acquisitions, divestitures and foreign exchange), sales rose 1% year over year, backed by higher pricing. Mix and organic volume had a neutral impact on sales in the reported quarter. Our model predicted year-over-year organic revenue growth of 3.2% for third-quarter fiscal 2025, with a 0.8% gain from pricing, 1% growth in the product mix and a 1.4% rise in the organic volume.

The company’s net sales decline for the fiscal third quarter was led by a year-over-year drop of 4% in the Baby, Feminine & Family Care segment and 3% in the Fabric & Home Care segment, followed by 2% declines each for the Beauty and Grooming segments. Organic sales rose 1% each for the Grooming and Beauty segments, offset by a 2% drop in the Baby, Feminine & Family Care segment; 1% fall in the Health Care and flat Fabric & Home Care segments.

Shares of PG fell nearly 3% in the pre-market session following the soft top-line results in the third quarter and trimmed view for fiscal 2025. The Zacks Rank #3 (Hold) company’s stock has lost 0.4% in the past three months against the industry’s 0.5% growth.

Procter & Gamble's Q3 Margins

The core gross margin declined 30 basis points (bps) year over year to 51% while the reported gross margin fell 20 bps. Currency rates hurt the gross margin by 0.1%. The currency-neutral gross margin contracted 10 bps to 51.2%. Gains from gross productivity savings of 160 bps and pricing of 30 bps were more than wholly offset by 120 bps of adverse mix, 40 bps of product reinvestments, 30 bps of adverse commodity costs and 10 bps of rounding and other items.

Core selling, general and administrative expenses (SG&A), as a percentage of sales, improved 120 bps from the year-ago quarter to 27.9%, while the currency-neutral SG&A rate fell 100 bps to 28.1%. This improvement was backed by 120 bps of productivity savings, including the adjustments to anticipated variable compensation payouts, partly offset by 20 bps of reinvestments and other items.

The core and reported operating margin expanded 90 bps from the prior year to 23%. On a currency-neutral basis, the operating margin increased year over year by 100 bps to 23.1%. The operating margin included gross productivity savings of 280 bps.

We expected the core gross profit margin to grow 150 bps year over year in the fiscal third quarter to 52.8%. The core SG&A expense rate was anticipated to increase 10 bps, whereas our core operating margin projection suggested an increase of 150 bps to 23.6%.

Peek Into PG's Financials

Procter & Gamble ended third-quarter fiscal 2025 with cash and cash equivalents of $9.1 billion, long-term debt of $24.3 billion and total shareholders’ equity of $52.5 billion.

The company generated an operating cash flow of $3.7 billion and an adjusted free cash flow of $2.8 billion for the three months ended March 31, 2025. The adjusted free cash flow productivity was 75% at the end of third-quarter fiscal 2025.

Procter & Gamble returned $3.8 billion in cash to its shareholders in the fiscal third quarter. This included $2.4 billion in dividend payouts and $1.4 billion in share buybacks.

PG's FY25 Guidance

Although the company is confident about the long-term growth prospects, it has been making a few adjustments to the near-term outlook to account for the ongoing market conditions, including a volatile consumer and geopolitical landscape. Hence, it lowered sales and EPS guidance for the current fiscal year.

The company now anticipates all-in sales for fiscal 2025 to be nearly in line year over year, while organic sales are likely to increase 2%. Earlier, management had projected all-in sales growth of 2-4% and organic sales to increase 3-5%.

The company now envisions net EPS growth to be in the band of 6-8% from the fiscal 2024 EPS of $6.02. P&G expects core EPS growth in the bracket of $6.72-$6.82 for. This equates to 2-4% growth compared with fiscal 2024 core EPS of $6.59. Previously, Procter & Gamble had forecast fiscal 2025 GAAP EPS to increase 10-12% from the $6.02 reported in fiscal 2024. Core EPS was then expected to rise 5-7% year over year from $6.59 reported in fiscal 2024.

The company still predicts a commodity cost headwind of roughly $200 million after tax for the current fiscal year. It expects adverse foreign exchange rates to be a headwind of about $200 million after tax. Collectively, such impacts will result in a headwind of 16 cents per share. It expects a modest headwind from net interest income and expense in fiscal 2025. P&G now estimates fiscal 2025 core effective tax rate to be approximately in line with the last year.

PG also notes that the prior fiscal year included benefits from minor brand divestitures and tax impacts, which are unlikely to recur to the same extent in fiscal 2025, resulting in a headwind of 10-12 cents per share on the core EPS. Procter & Gamble still expects the capital expenditure to be 4-5% of net sales in fiscal 2025. The adjusted free cash flow productivity is estimated to be 90%. The company intends to pay dividends worth $10 billion, with share repurchases of $6-$7 billion.

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