Procter & Gamble Q2 2022 Earnings Results & Report

Procter & Gamble EPS Results

• Actual EPS: $1.66
• Consensus EPS: $1.65
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $1.64
• EPS Beat Rate: 8 of last 8 quarters

Procter & Gamble Revenue Results

• Actual Revenue: $20.95 billion
• Expected Revenue: $20.34 billion
• Beat/Miss: Beat by +$617.54 million
• YoY Revenue Growth: +6.10%

Procter & Gamble (NYSE:PG) Company (NYSE: PG) is a global consumer products company that develops, manufactures and markets branded products used in households and personal care. Its portfolio includes personal health and grooming products, beauty and skin care items, baby, feminine and family care products, fabric and home care products, and oral care products.

The company’s well-known brands include Pampers, Tide, Gillette, Crest, Oral-B, Head & Shoulders, Pantene, Olay, Old Spice, Dawn, Febreze and Mr. Clean. Procter & Gamble sells its products through grocery stores, mass merchandisers, pharmacies, department stores, specialty retailers, e-commerce channels and other distributors.

Founded in 1837 by William Procter and James Gamble, the company is headquartered in Cincinnati, Ohio. Procter & Gamble serves consumers in markets around the world, with operations and sales spanning North America, Europe, Greater China, Asia-Pacific, Latin America, Africa and the Middle East.

Procter & Gamble Q2 2022 Earnings Call Transcript

Key Takeaways

• Organic sales grew more than 6% in Q2, driven by +3 points of volume and +3 points of pricing, with all 10 product categories growing or holding share and broad-based strength across focus and enterprise markets.
• P&G confirmed its fiscal-year core EPS guidance of 3–6% growth while raising its outlook for organic sales growth to 4–5%, cash productivity to 106% and planning to return a combined $18 billion to shareholders.
• Core gross margin declined roughly 400 basis points in Q2, reflecting a ~460-bp hit from higher commodity and freight costs and a 140-bp mix headwind, partially offset by productivity savings and pricing, with sequential gross margin improvement expected as price increases flow through.
• Commodity, freight and foreign-exchange headwinds are now estimated at $2.8 billion after tax for fiscal 2022 (including $2.3 billion from commodities, $300 million freight and $200 million FX), to be offset by mid-single-digit global price increases tailored by category and geography.
• The company’s strategy—anchored on a performance-driven portfolio, superiority, productivity, constructive disruption and an agile organization—drove global market-share gains of 60 basis points, with 38 of the top 50 category-country combinations growing share in the quarter.

Presentation

[Operator]

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 measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends, and has posted on its investor relations website, www.pginvestor.com, a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Andre Schulten.

[Andre Schulten, CFO at The Procter & Gamble Company]

Good morning, everyone. Joining me on the call today are Jon Moeller, President and Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. We're going to keep our prepared remarks brief and then turn straight to your questions. Q2 was a strong quarter, very strong top line growth, sequential earnings progress in the face of significant cost headwinds, continued strong cash productivity. Our progress enables us to confirm fiscal year EPS guidance while increasing our estimates for top line growth, cash productivity, and cash return to shareowners. Organic sales grew more than 6%. Volume contributed three points of sales growth. Pricing added three points as September-October price increases flow through, and as year-on-year promotion comparisons normalize. Mix was neutral for the quarter. These strong company results are grounded in broad-based category and geographic strength.

[Andre Schulten, CFO at The Procter & Gamble Company]

Each of the 10 product categories grew or held organic sales in the quarter. Personal Health Care grew 20%. Fabric Care and Feminine Care were up double digits. Baby Care up high singles. Grooming grew mid-singles. Home Care, Oral Care, Hair Care, and Skin and Personal Care each grew low single digits. Family Care organic sales were in line with prior year. Focus Markets grew 6%, and Enterprise Markets were up 7%. In Focus Markets, U.S. organic sales were up 9% despite 12% growth in the base period. On a two-year stack basis, U.S. organic sales are up 21%. Europe Focus Markets were up 5%. Greater China organic sales were in line with prior year against a strong 12% base period comp and due to slower market growth in the quarter.

[Andre Schulten, CFO at The Procter & Gamble Company]

In addition, we took proactive steps in the quarter to encourage our network of distributors to reduce inventory levels to reflect short-term consumer demand softness in the market. Latin America led the growth in enterprise markets, up 15%. Global aggregate market share increased 60 basis points. 38 of our top 50 category country combinations held or grew share for the quarter. Our superiority strategy continues to drive strong market growth and in turn, share growth for P&G. All channel market value in the U.S. categories in which we compete grew nearly 3.5% this quarter. P&G value share continued to grow, up nearly 1.5 points versus same quarter last year, now at 34%. Importantly, the share growth is broad-based. Nine of 10 product categories grew share over the past three, six, and 12-month periods in the U.S.

[Andre Schulten, CFO at The Procter & Gamble Company]

Consumers continue to prefer P&G brands and superior performance they provide, even as inflation is impacting household budgets. On the bottom line, core earnings per share were $1.66, up 1% versus the prior year. On a currency neutral basis, core EPS increased 2%. Core gross margin decreased 400 basis points, and currency neutral core gross margin was down 410 basis points. Higher commodity and freight cost impacts combined were a 460 basis points hit to gross margins. Mix was a 140 basis point headwind, mainly from product mix impacts. Productivity savings and pricing each provided partial offsets to the gross margin headwinds. Within SG&A, advertising spending increased versus prior year as we continue to invest to communicate the superiority of our brands.

[Andre Schulten, CFO at The Procter & Gamble Company]

However, overall marketing expense as a percentage of sales decreased 80 basis points, driven by sales leverage and savings in non-working marketing costs. Core operating margin decreased 250 basis points. Currency neutral core operating margin declined 240 basis points. Productivity improvements were 150 basis points help to the quarter. Free cash flow productivity was 106%. We returned nearly $7 billion of cash to shareowners, approximately $2.2 billion in dividends and $4.8 billion in share repurchase.

[Andre Schulten, CFO at The Procter & Gamble Company]

In summary, while input costs and supply chains remain challenging, we delivered good results for the second quarter and for the first half of the fiscal year, keeping us on track to deliver our organic sales and earnings estimates and to raise estimates for sales, cash productivity, and cash return to shareowners, which I'll come back to later. Moving on to strategy. Our team continues to operate with excellence and stays focused on the near-term priorities and long-term strategies that enabled us to create strong momentum prior to the COVID crisis, and to make our business even stronger since the crisis began. We continue to step forward into the challenges and to double down on our efforts to delight consumers. As we continue to manage through this crisis, we remain focused on the three priorities that have been guiding our near-term actions and choices.

[Andre Schulten, CFO at The Procter & Gamble Company]

First is ensuring the health and safety of our P&G colleagues around the world. Second, maximizing the availability of our products to help people and their families with their cleaning, health, and hygiene needs. Third priority, supporting the communities, relief agencies, and people who are on the front lines of this global pandemic. The strategic choices we've made are the foundation for balanced top and bottom line growth and value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. In these performance-driven categories, we've raised the bar on all aspects of superiority, product, package, brand communication, retail execution, and value. Superior offerings delivered with superior execution drive market growth in our categories. This drives value creation for our retail partners and builds market share for P&G brands.

[Andre Schulten, CFO at The Procter & Gamble Company]

The superiority model works in each of our categories. Take the three category growth drivers this quarter, personal health care, fabric care, and feminine care. Very different categories, different competitors, different geographic footprints, and different materials and manufacturing processes. Each delivering superiority and each growing organic sales double digits. In each of these categories, P&G is driving a disproportionate share of overall category value growth, growing the pie for all participants. We've made investments to strengthen the health and competitiveness of our brands across innovation, supply chains, and brand equity, and will continue to invest to extend our margin of advantage and quality of execution, improving solutions for consumers around the world. Building on the strength of our brands, we are thoughtfully executing tailored price increases. We closely couple price increases with innovation to improve consumer value along the way.

[Andre Schulten, CFO at The Procter & Gamble Company]

The strategic need for investment to continue to strengthen the superiority of our brands, the short term need to manage through this challenging cost environment, and the ongoing need to drive balanced top and bottom line growth, including margin expansion, underscore the importance of ongoing productivity. We're committed to driving cost savings and cash productivity in all facets of our business. No area of cost is left untouched. Each business is driving productivity within their P&L and balance sheet to support balanced top and bottom line growth and strong cash generation. Success in our highly competitive industry requires agility that comes with a mindset of constructive disruption, a willingness to change, adapt, and create new trends and technologies that will shape our industry in the future. In the current environment, that agility and constructive disruption mindset are even more important.

[Andre Schulten, CFO at The Procter & Gamble Company]

Our organizational structure yields a more empowered, agile, and accountable organization with little overlap or redundancy, flowing to new demands, seamlessly supporting each other to deliver against our priorities around the world. These strategic choices of portfolio, superiority, productivity, constructive disruption, and organizational structure and culture are not independent strategies. They reinforce and build on each other. When executed well, they grow markets, which in turn grows shares, sales, and profit. These strategies were delivering strong results before the crisis, have served us well during these volatile times, and we're confident they remain the right strategic framework as we move through and beyond the crisis. Moving on to guidance. We said last quarter that we would undoubtedly experience more volatility as we move through the fiscal year. The Omicron variant has certainly proven this to be correct.

[Andre Schulten, CFO at The Procter & Gamble Company]

As we saw in the first half of the fiscal year, growth results going forward will be heavily influenced by base period effects, along with these realities of current year cost pressures, foreign exchange volatility, and continued effects of the global pandemic on supply chains and consumer behavior. Transportation and labor markets remain tight. Availability of materials remains stretched in some categories and in some markets. Inflationary pressures are broad-based with little sign of near-term relief. These cost and operational challenges are not unique to P&G, and we won't be immune to the impacts. However, we think the strategies we've chosen, the investments we've made, and the focus on executional excellence have positioned us well to manage through this volatility over time. The recent spike in virus cases and resulting lockdowns increase the risk of additional work stoppages in our operations or in those of our suppliers.

[Andre Schulten, CFO at The Procter & Gamble Company]

Based on current spot prices, we now estimate a $2.3 billion after-tax commodity cost headwind in fiscal 2022. Since our last update, we've seen continued increases in diesel and chemicals with little offset in other materials. Trade costs have continued to increase. We now expect freight and transportation costs to be an incremental $300 million after-tax headwind for fiscal 2022. Foreign exchange rates have also moved against us since our last guidance. We now expect FX to be a $200 million after-tax headwind to earnings for the fiscal year. We will offset a portion of these cost pressures with price increases and with productivity savings. We've now announced price increases in each of our 10 product categories in the U.S.

[Andre Schulten, CFO at The Procter & Gamble Company]

Increases in Baby Care, Feminine Care, Adult Incontinence, Family Care, Home Care, Hair Care, Grooming, Oral Care, Skin Care are now effective in the market. We also increased prices on mid-tier liquid detergents and powder detergents over the last few months. In mid-December, we announced to retailers that effective February twenty-eighth, we are increasing pricing on the balance of our Fabric Care portfolio. This includes Tide, Gain, Downy, Bounce, and Unstopables, and includes all forms, liquid and unit dose detergents, scent beads, liquid fabric softeners, and dryer sheets. Just yesterday, we announced to retailers that we are increasing pricing on certain personal healthcare brands in the U.S. effective mid-April. The degree and timing of these moves are very specific to the category, brand, and sometimes the product form within a brand. This is not a one-size-fits-all approach.

[Andre Schulten, CFO at The Procter & Gamble Company]

We're also taking pricing in many markets outside the U.S. to offset commodity, freight, and foreign exchange impacts. As we've said before, we believe this is a temporary bottom-line rough patch to grow through, not a reason to reduce investment in the business. We're sticking with the strategy that has been working well before and during the COVID crisis. Moving to the key metric guidance. We now expect organic sales growth in the range of 4%-5% for the fiscal year, up from our initial range of 2%-4%. We expect pricing to be a larger contributor to sales growth in the back half of the fiscal year as more of our price increases become effective in the market. As this pricing reaches store shelves, we'll be closely monitoring consumption trends. So far, we haven't seen noticeable changes in consumer behavior.

[Andre Schulten, CFO at The Procter & Gamble Company]

Demand for our best-performing premium priced offerings remains very strong, as do our market share trends. On the bottom line, we're confirming our outlook of core earnings per share growth in a range of 3%-6%. In total, our revised outlook for the impact of materials, trade, and foreign exchange is now a $2.8 billion after-tax headwind for fiscal 2022 earnings, or roughly $1.10 per share, a 20 percentage point headwind to core EPS growth. Despite these cost challenges, we are committed to maintaining strong investment in our brands. As pricing goes into effect, and as we annualize the initial spike in input costs, earnings growth should be sequentially stronger in the third and fourth quarter of the fiscal.

[Andre Schulten, CFO at The Procter & Gamble Company]

We are increasing our outlook for adjusted free cash flow productivity to 95%, and we are raising our guidance for cash return to shareowners. We continue to expect to pay over $8 billion in dividends, and we now plan to repurchase $9 billion-$10 billion of common stock. Combined, a plan to return $17 billion-$18 billion of cash to shareowners this fiscal year. This outlook is based on current market growth rate estimates, commodity price, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruption, major supply chain disruptions or store closures are not anticipated within the guidance ranges. To conclude, our business exhibited strong momentum well before the COVID crisis. We've strengthened our position further during the crisis, and we believe P&G is well-positioned to grow beyond the crisis.

[Andre Schulten, CFO at The Procter & Gamble Company]

We will manage through the near-term cost pressures and continued market-level volatility with the strategy we've outlined many times and against the immediate priorities of ensuring employee health and safety, maximizing availability of our products, and helping society overcome the COVID challenges that still exist in many parts of the world. We'll continue to step forward toward our opportunities and remain fully invested in our business. We remain committed to driving productivity improvements to fund growth investments, mitigate input cost challenges, and to maintain balanced top and bottom line growth. With that, we'll be happy to take your questions.

[Operator]

Ladies and gentlemen, if you have a question, please press star followed by one on your phone. If your question has been answered or if you'd like to withdraw your question, press star followed by two. Your first question comes from the line of Dara Mohsenian with Morgan Stanley.

[Dara Mohsenian, Beverage, Household. Products, and Food Analyst at Morgan Stanley]

Good morning. On the top-line side, clearly strong results across the board, but beauty top-line growth was below consensus in the quarter. Just any thoughts on the beauty top-line performance, and specifically, maybe you can talk about China Beauty from a category and market share perspective in the December quarter, and any go-forward thoughts on China Beauty or China in general, given the flattish year-over-year trends in the quarter. Then on the rest of the business with the strong market share results, can you just talk about your level of confidence going forward in sustaining those share gains and how supply chain and consumer and retailer acceptance of price increases may impact the forward outlook from a market share perspective? Thanks.

[Andre Schulten, CFO at The Procter & Gamble Company]

Just answer like two of those. All right. Morning, Dara. That's a lot. So let me start with maybe two and focus on beauty and China within that. Look, if you look at our beauty business over a longer period of time, the business has actually delivered about $3 billion in incremental sales over the past five years, more than $1 billion of incremental profit, significant contribution to shareholder return, 25 consecutive quarters of organic sales growth, including this quarter. When we look at this quarter on a two-year stack, on beauty, it's a 7% for quarter two. Quarter one was a 9% stack. Hair care growing 2%, skin and personal care growing 3%.

[Andre Schulten, CFO at The Procter & Gamble Company]

We feel good about the overall performance of the beauty business and the strength of the core portfolio. There is significant runway. I'll comment on China in a minute. We certainly saw a slowdown in some of the beauty portfolio, namely SK-II, which we've mentioned before, store closures of department stores, lower traffic there, and also slower key consumption periods in some of the China events. Honestly, our unwillingness to go into very deep discount levels on the brand have contributed to a slower growth in quarter two. Overall, the portfolio is strong, we believe has very strong growth potential in the future.

[Andre Schulten, CFO at The Procter & Gamble Company]

We are also excited about the acquisitions we've announced, TULA, Farmacy Beauty, and OUAI, all focused on the premium end of the trade in the U.S., premium consumers, which is giving us opportunity for additional top-line growth and value creation in the U.S. and also globally. On China, I'll start with a similar comment. China, over the past four or five years, has delivered high singles or low teen sales growth. We have a stable of very strong brands. We continue to believe that consumption after a weaker period in quarter one, as you have seen, and quarter two in the market, consumption in our categories will return to mid-singles, and we feel well-positioned to benefit from that growth with a strong organization, strong supply chain, and strong R&D capability on the ground.

[Andre Schulten, CFO at The Procter & Gamble Company]

The other point to note, even with China being flat in the quarter, from a global perspective, we were able to grow more than 6%. Part of that is the strength of the geographic portfolio that, you know, we need to focus on because in some markets, we might have to invest. China certainly is, at this point in time, as you point out, weaker from an overall consumption standpoint. I'll stop there. I'm sure we'll get back to your other questions and some of the other comments, Dara.

[Operator]

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

[Lauren Lieberman, Managing Director and Equity Research Analyst at CHPC & Beverages]

Great. Thanks. Good morning. I was curious to talk a little bit about productivity, with the contribution this quarter was only, I think, it's 80 basis points what was cited in the release. It just I would guess that means a big ramp-up in the second half. I was curious, you know, why relative to timing, if it has to do with, you know, COVID and absenteeism, if it's related to how you calculate this based on raw material access and so on. Just anything you can share on productivity plans and timing would be helpful. Thanks.

[Andre Schulten, CFO at The Procter & Gamble Company]

Morning, Lauren. Productivity, the number of 80 basis points in the quarter, we expect about $800 million BT productivity contribution from cost of goods for the year. It's a little bit lighter than what we would have done in previous years, but most importantly, we remain fully committed to productivity as a core driver of margin expansion. In the short term, there are a couple of effects that I wanna spend a minute on. Number one, when you think about cost savings projects, they require line time. That line time is competing with the need to ship cases in a very constrained supply chain. When we think about innovation, we talk frequently about our desire to closely couple price increases with innovation. Innovation also needs line time.

[Andre Schulten, CFO at The Procter & Gamble Company]

Cost savings projects on the line also compete with innovation, and they compete with our desire and need to ship the business. Therefore, in a constrained environment, as you point out, our businesses make the decision to focus on innovation, focus on shipping the business, which is better for retailers, better for consumers, better for us in terms of value creation, but it has an impact on cost savings. The good news is these cost savings are available to us in the future. They don't go anywhere, but you see a little bit slower ramp-up in that context. Second element I would mention is the global pressure on supply chain, and the flexibility that we've talked about that our supply people have generated doesn't come for free.

[Andre Schulten, CFO at The Procter & Gamble Company]

When we need to shift to alternate materials, when we need to shift to alternate suppliers or sources of materials geographically, that comes as a premium, which goes against productivity. Again, the right choice because shipping the cases is, financially more viable than creating the cost saving, but it has an impact. Then the last point I'll make is, you know, negotiating commercial savings when everyone is trying to get the materials in sufficient quantity is also a bit more difficult. All of that to say short-term, pressure, longer term, fully committed to productivity being a core driver of margin expansion and balanced growth model, and you'll see progress quarter by quarter.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

I would just add, Lauren, that, you know, Omicron hasn't helped. It further pressurizes the dynamics that Andre spoke about, and it just reduces the resources we have available at any point in time, to work on these things. When, you know, as people become infected and need to quarantine, as they need to take care of family members, as children's schools are closed, all of those things have a real impact, which to Andre's point, should lighten as hopefully, everyone on the call, please cross your fingers as we go forward.

[Lauren Lieberman, Managing Director and Equity Research Analyst at CHPC & Beverages]

Great. Thank you.

[Operator]

All right, next question comes from the line of Steve Powers with Deutsche Bank.

[Stephen Powers, Managing Director and Senior Equity Research Analyst, Head of US Consumer Staples at Deutsche Bank]

Hey, thanks and good morning. Maybe building on that a little bit. As we think about the back half and the leverage that you have at your disposal to offset the, you know, the $2.8 billion in commodity freight currency headwinds that you now face, I guess, can you talk a little bit, I'd like you to elaborate a little bit more on the initiatives that you've put in place specifically over the last three months to help with that in, as we get into calendar 2022. I guess I'm specifically curious when we think about the second half P&L, as to how you anticipate the drivers of organic growth shaking out price versus volume, number one.

[Stephen Powers, Managing Director and Senior Equity Research Analyst, Head of US Consumer Staples at Deutsche Bank]

Number two, whether we should expect marketing, inclusive of non-working media productivity to remain a continued source of positive leverage as the year continues.

[Andre Schulten, CFO at The Procter & Gamble Company]

Morning, Stephen. All right. From a growth margin perspective, a couple of things will come to play here. If you assume that the existing commodity foreign exchange rate and transportation warehousing pressures remain at this level, which is our basis for planning, we will benefit from more pricing flowing through the P&L. Most of our price increases, as you've seen in our prepared remarks, have gone, or some have gone into effect in September and October, but the majority of the price increases are still coming into effect over December, quarter one, quarter three, and quarter four. The contribution of pricing both to the growth margin recover as well as to the price mix line within the top line is gonna increase sequentially as we go through the fiscal year.

[Andre Schulten, CFO at The Procter & Gamble Company]

We also will see in the base period the commodity pressures are coming into the base growth margin starting with the third quarter and then really flowing in in the fourth quarter base comparison. That's gonna help the growth margin comparison as well. Lastly, the continuation of hopefully more stability in the labor force, more stability around COVID as we exit this winter, will allow us to increase contribution from productivity as I've talked before, which will also help growth margin recovery in the second half. On the pricing contribution versus volume contribution, I expect price to become a bigger part, as I said, logically because of the timing of the price increases that we have announced.

[Andre Schulten, CFO at The Procter & Gamble Company]

In terms of ability to sustain the pricing, we have seen, for the price increases where we have sufficient lead period at this point in time, a more benign reaction of the consumer. The consumer is healthy, generally, and is preferring our brands. We're starting with strong superiority and price elasticity has generally been lower than what we would have seen historically, which also speaks to the fact that we hopefully will continue to see volume growth in combination with a stronger price growth in the back half.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

I just wanna underscore something that Andre said. Remember that the pricing that we've announced, even the pricing that's taken effect at shelf, we didn't have a full quarter benefit from in the quarter we just completed. That simple roll forward is a help. The majority of the pricing that we've announced has not yet taken place.

[Operator]

All right, next question will be from Jason English with Goldman Sachs.

[Jason English, Managing Director, Equity Research Analyst at Goldman Sachs]

Hey, good morning, folks. Thank you for slotting me in. I wanted to drill a little bit deeper on the cost and price outlook. A couple of things. First, in response to that last question, I think I got the sense, well, clearly telegraphed this as the pricing will continue to build. Back half, it sounds like you're looking for at least 4%, if not more price contribution, or at least about $1.5 billion or so net sales contribution. If we look at your cost and of both commodities and freight in the 2.6, I think from your margin bridge, it implies that you've already absorbed around $1.7 billion in the front half.

[Jason English, Managing Director, Equity Research Analyst at Goldman Sachs]

In other words, you're expecting $1 billion or less in the back half, and we should therefore expect a price cost surplus to emerge. I wanna make sure I had all my math right on that, at least directionally. Then second part, you've clearly had to revise your commodity and freight outlook up the last few quarters. Remind us again what the current commodity outlook is predicated on so that we can get a proper sense of what the upside, downside risks are to that. Thank you.

[Andre Schulten, CFO at The Procter & Gamble Company]

Yeah. Morning, Jason. On the commodity and transportation warehousing timing, yeah, I mean, I assume your math is right. I won't check it here, but we can certainly follow up, as needed. We assume in our forecast, in our guidance, spot prices, for both the commodity basket and for transportation and warehousing. We've seen increases still in this last cycle as reflected in the increase in commodities and transportation and warehousing, but we're also seeing a slower rate of increase. Hopefully, meaning that we reach the peak here soon. We are building our financial forecast and our financial planning on that level. We don't assume any easing in terms of, transportation and warehousing or commodity cost impact or foreign exchange for that matter.

[Operator]

Next question will come from Robert Ottenstein with Evercore ISI.

[Robert Ottenstein, Senior Managing Director, Head of Global Beverages and Household Products at Evercore ISI]

Great. Thank you very much. I was wondering if you could give us some sense of how you assess your revenue management skills at this point. Clearly, you know, the results would suggest they're pretty positive. You know, we'd love, I'd love to understand some, maybe some of the changes that you've done over the last few years to improve your ability to manage an inflationary environment, if in fact, you know, that is what we're headed into for a long period. You know, your ability to, you know, work with different elasticities, manage, you know, trade spend, et cetera, both in the U.S. and overseas, and how it may be better than it was in the past. Thank you.

[Andre Schulten, CFO at The Procter & Gamble Company]

Very good morning, Robert. If I step back, I think we're better positioned for dealing with an inflationary environment or revenue management in that sense than we've ever been before. Starting with a portfolio that is focused on daily use categories, health, hygiene, and cleaning that are essential to the consumer versus discretionary categories, which in these environments are the first ones to lose focus from the consumer. Secondly, starting with a portfolio that is 75% superior by our assessment and reflected probably in the market share results and trends that we're seeing. We also, over time, have built much stronger price ladders. We have offerings for the consumer at different price points and different cash outlays.

[Andre Schulten, CFO at The Procter & Gamble Company]

When you think about diapers, you can get a Luvs diaper for $0.15 a diaper, a Swaddlers at $0.30 or a Pure diaper at $0.38. That's generally true across all categories, across all brands. That means the consumer has a choice within our portfolio. In that sense, I think we are set up well from a starting point to deal with inflation and related pricing. From an execution standpoint, I think we also benefit from a couple of things. Number one, the organizational redesign in focus markets and enterprise markets enables much faster and much clearer decision-making, which is critical in these processes. Also much more diligence in terms of where to take pricing, country, brand, SKU level.

[Andre Schulten, CFO at The Procter & Gamble Company]

The other element here is that from an execution standpoint, we certainly have seen that innovation can play a significant role, and the strength of our innovation pipeline and our ability to combine pricing with innovation is certainly helping us in this environment. Last point I'll make, and then Jon will probably have comments here as well. We've been operating in high inflation environments around the world for many years. Think about Turkey, Nigeria, Argentina. Those are high inflation markets and environments. We know how to deal with that. Obviously, we hope we don't get to that place, but generally well-positioned for the reasons I tried to outline here.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Just a reminder of the obvious. We're dealing with commodity cost increases that affect every competitor, both multinational and local, which changes the dynamic pretty considerably versus, for example, pricing for foreign exchange, which has a differential impact across the competitive set. It's not an easy job, but it's an easier job that we've managed, as Andre says, successfully in many geographies in the recent past.

[Operator]

Next question will come from the line of Kevin Grundy with Jefferies.

[Kevin Grundy, Equity Research Analyst, Consumer Staples at Jefferies]

Great. Thanks. Morning, everyone. I wanted to pivot and ask about M&A on a couple different fronts, please. Just, number one, the openness to larger scale M&A at this point. You know, I think there was clearly a period in recent years post the portfolio rationalization where, you know, the company was sensibly very focused on turning around the portfolio. Larger scale M&A wasn't really on the table. So is the organization in a better place? Is the board open to larger scale deals at this point? And if so, maybe you could put some guardrails around that. And then relatedly, Andre, you touched on some of the smaller tuck-in deals in Prestige Beauty, which have been picked up here.

[Kevin Grundy, Equity Research Analyst, Consumer Staples at Jefferies]

Maybe just spend a moment there, define the approach in Prestige Beauty given past missteps and the decision to exit some of the larger brands that were once in the portfolio there. I think that'd be helpful. Thank you for that.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Hey, Kevin, this is Jon. A couple points on large M&A. The first very, very important point is we like our current portfolio. We have confidence that we can create value with that portfolio. Frankly, all parts of it are working. Andre mentioned that, you know, we're growing market share in nine out of ten of those categories. Importantly, that market share growth is not taking business, it's creating business in large part, affecting the overall growth of the market. We're in a very healthy situation with a very healthy portfolio that's underpinned with a clear set of priorities and a very effective, tightly integrated set of strategies. We're strengthening our strategic execution by a focus on four areas.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

One is supply, the second is digital competence across the value chain, the third is employee value, and the fourth is sustainability. We like that plan overall. Second point, our algorithm, growing slightly ahead of the market with EPS up mid- to high-single, assumes 100% organic growth. Again, we don't need large M&A to deliver against that. We certainly haven't utilized large M&A in the last four- or five-year period when we've been delivering very regularly on that expectation. A couple other points and then I'll get to beauty, and then Andre may have some comments on beauty as well.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

We have said many times that we'd intend to win in these 10 categories that we've selected, and that acquisition would be a part of the way that we may choose to fill out categories in order to win. We've talked about two categories in particular that would be particular focus areas. One is skincare, and the other is personal health care. All of that remains as true. The last point I would make, which is I realize not very helpful to the audience at hand, but as a matter of policy, we don't comment further than what I just have on acquisition or divestiture. On beauty, I wanna clarify what I think has been a little bit of a misunderstanding.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

When we made the portfolio decisions as to what we were going to move out on beauty and what we were going to stay in, we did not make price tier decisions. We did not exit premium beauty. We made category decisions, and we exited several categories that were more discretionary, that were not daily use, and where performance had a lower role in driving brand choice. For example, we maintained our most premium beauty offering, SK-II. This notion that we're, you know, we got out of a price tier and now we're getting back in is not the way to think about it. We got out of categories, and we're strengthening those categories.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

These the brands that we've purchased, as Andre said earlier, play in the premium portion of the beauty categories, which are the fastest-growing from a market standpoint, to date, and obviously give us ample opportunity to create value given their margin structure. Andre, anything to add?

[Andre Schulten, CFO at The Procter & Gamble Company]

Nothing to add.

[Operator]

Your next question comes to the line of Andrea Teixeira with JPMorgan.

[Analyst at JPMorgan]

Thanks, good morning. This is actually Kojo for Andrea here. Just in terms of service levels, can you please comment on your ability to fulfill, just given the impacts of employee absenteeism, and has it improved from the peak of Omicron worldwide? Thank you for that.

[Andre Schulten, CFO at The Procter & Gamble Company]

Morning. Our ability to supply is stable, actually. If you look at our on-shelf availability, for example, in the U.S., last quarter, we reported that was around 94%. We're still running at around 94%, which is not where we wanna be, which would be more in the 98%-99% range. But good relative to peer group and good given, again, the overall challenges the industry is seeing, the retail environment is seeing. That is true around the world. Our supply chain people who deserve all the credit here continue to do an absolutely amazing job, making sure that our retail partners have the products available that our consumers wanna buy. There are no major outages given the flexibility we've created within the supply chain.

[Andre Schulten, CFO at The Procter & Gamble Company]

Even in China, as we saw regional lockdowns, we were able to shift production into alternative sites and thereby maintain supply. Continued great work by our supply organization. Relatively stable situation. We'll continue to monitor closely because this is not over. Great success now is no guarantee for the future, but we certainly feel well-positioned.

[Operator]

All right. Next question will be from the line of Chris Carey with Wells Fargo Securities.

[Christopher Carey, Head of Consumer Staples Research, Senior Equity Analyst at Wells Fargo Securities]

Hi, good morning. One quick follow-up on SK-II. Are you seeing that slow down as temporary some normalization in demand or do you think the brand is reaching some ceiling on growth and hence you've made these additional moves? Then, you know, a broader question just on pricing and Baby. You know, price mix in the category has really accelerated. Doesn't seem like it was that long ago that the category was seeing higher promotional activity to drive volumes. Can you just expand on the step change there? The drivers of the move on pricing and premiumization, why it's the right move?

[Christopher Carey, Head of Consumer Staples Research, Senior Equity Analyst at Wells Fargo Securities]

You know, maybe any broader thoughts on, you know, there's been some discussion around, you know, a little bit of a mini baby boom, and I wonder if you have any thoughts there. Thanks so much.

[Andre Schulten, CFO at The Procter & Gamble Company]

All right. Good morning. On SK-II, certainly no ceiling for the brand in terms of growth. The brand continues to carry enormous equity with existing users, enormous appeal to new users, specifically in the Asia space. We continue to be very encouraged by both the current strength of the brand, but also by the future pipeline and the initiatives that are to come. The brand is operating in channels that are most impacted by the pandemic. That has an impact on our business. It has an impact on total consumption. Lastly, I mentioned this in the earlier question, we don't believe that heavy discounting is the right strategy in the short term to overcome some of these challenges.

[Andre Schulten, CFO at The Procter & Gamble Company]

We're focusing on building the equity, building product efficacy, and running our business model to return to stronger growth here in the future. On the Baby category, you're right, price mix when you look at the U.S., but also globally, is increasing, which is encouraging for two reasons. Encouraging number one, baby care is one of the hardest hit categories from a commodity impact. It's good to see that the pricing that was taken is flowing through to the P&L to help with productivity, offset some of that commodity pressure. We see the pricing in Baby flowing through really globally. That's a core driver. Every player in the industry, as Jon mentioned before, has to find a way to offset these cost pressures, that are very significant in this category.

[Andre Schulten, CFO at The Procter & Gamble Company]

More encouraging to me is, in our portfolio, the desire of the consumer to move up to higher premium offerings because they truly provide better value for the consumer. When you think about the U.S., for example, most of the growth, if not the absolute majority of the growth, comes from tier one. Our Swaddlers proposition comes from Cruisers 360, which is a very unique proposition in the pants form for active babies, comes from Pampers Pure, and comes from Ninjamas, which is a bedwetting product which we reentered the category, created significant growth in the category and built a 9% share position.

[Andre Schulten, CFO at The Procter & Gamble Company]

The portfolio strategy we're executing, the innovation we're bringing is rewarded by the consumer with trade-up, and that is a significant contributor to price mix and hopefully, and I think sustainable given, the true benefits we're seeing, the consumer appreciate.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Just a couple of additional points on SK-II to hopefully make it clearer and bring it to life what's actually happening here. If you dramatically simplify the SK-II business, you would simplify it historically into two primary channels. One is travel retail and the other is department store. In both of those channels, it's typically been a counseled product, meaning there's a knowledgeable person in the store to help you understand the benefits of the product and which elements are right for you. With COVID, travel retail largely closed in many parts of Asia, inability of counselors to go to work for the multitude of reasons we're all familiar with, including some regulatory prohibitions.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

If you look at Japan, you have that dynamic, plus you have what was a major source of business, which was Chinese travelers going to Japan to department stores to buy product to bring back to their friends and family. That's not happening. When you ask why is SK-II currently soft, those are the reasons. As Andre indicated, it has nothing to do with the equity or strength of the brand. We've converted, and I really applaud the team for doing this, a fair amount of that purchase from those channels to more local channels that support local consumption. Still the impact has been significant.

[Operator]

All right, next question will come from Wendy Nicholson with Citi.

[Wendy Nicholson, Co-Head of Global Consumer Equity Research at Citi]

Hi. I wanted to just go back and talk about the M&A strategy for a minute, just with regard to, you know, not just the smaller brands that you've just recently announced acquiring, but maybe looking back and can you give us kind of a little bit of an update on some of the smaller brands you've bought historically, whether it's First Aid Beauty, whether it's Native, or This is L. Just to sort of, you know, tell us how have they done? Has it been worth the effort? You know, how fully integrated are they? Because again, back to the earlier discussion about M&A, I think the question I would have is these are small companies that obviously are growing rapidly now, but, you know, is it worth the hassle? Is it worth the effort?

[Wendy Nicholson, Co-Head of Global Consumer Equity Research at Citi]

Is it worth the money to bring them into the P&G fold? Can they really ever move the needle? Just sort of, you know, updating us on maybe your track record with regard to the prior small acquisitions you've made. Thanks.

[Andre Schulten, CFO at The Procter & Gamble Company]

Yeah, very good. When we have these discussions on is there value in integrating these small tuck-in acquisitions, we're obviously asking the exact same question. The track record within Beauty is actually very good. When you look at First Aid Beauty and Native as good examples, we've been able to bring these brands in, build on their existing sales bases, expand distribution, expand innovation and marketing support across channels, and significantly grow both the net sales and value base. The Beauty organization's ability to take these small brands, maintain their character and user base, and apply our strength to grow them, is actually very promising. That's the underlying hypothesis and reason why we believe these three acquisitions will create significant value for Beauty as well.

[Andre Schulten, CFO at The Procter & Gamble Company]

Their approach of bringing these brands in is also unique in the sense that the beauty organization is really taking time to bring the existing organization into the P&G ecosystem, have them operate more independently than we've done in the past to ensure that the character of the brand and the key strength of the brand are maintained, and then we carefully build on top. High confidence based on previous experience would be my summary.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Let me just add a couple things here, Wendy. Our beauty business historically has been built this way. We acquired, for example, Old Spice. We acquired Olay. Pantene and Head & Shoulders were tiny. We're talking less than $100 million in sales, and now they're two of the largest shampoos in the world. That doesn't give us any guarantee, but it's certainly, as Andre was indicating, a strong track record to build from. That's point one. Point two, relative to the company's ability to handle M&A, and by the way, in spending time on this, I'm not suggesting that the emphasis or focus has shifted in that direction by any stretch of the imagination. The best example that I can point to, because we've had the longest track record with it, is the Merck OTC acquisition.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Different category, but so far, an incredibly successful acquisition. Our OTC business grew at 20% in the quarter that we just completed, and is doing so very profitably. Having said all that, probably more than any other person, and I don't mean to personalize this, I've got more blood on my back from cleaning up lots of small brands. I spent four years of my life doing it. We are going to be very disciplined, and we'll get an early read on whether we think things are gonna work according to plan or not. If not, we'll pivot.

[Operator]

All right, next question will come from the line of Nik Modi with RBC.

[Nik Modi, Co-Head of Global Consumer & Retail Research at RBC Capital Markets]

Yeah, thanks. Good morning, everyone. Just a housekeeping or follow-up, and then a broader question. On the follow-up, Andre, is there any way you can provide any quantification on the out-of-stock impact on organic revenue growth this quarter? And then the broader question, I guess this would be for you, Jon, is just when you think about the consumer and segmentation strategy at P&G, when you think about the Gen Z consumer, you know, do you think that you have the core brand set, you know, broad enough to reach that consumer? Or do you feel like you need to either launch new brands or, you know, make some of these acquisitions that you've discussed, we've been discussing during this call to really cater to those particular consumers? Thank you.

[Andre Schulten, CFO at The Procter & Gamble Company]

Nik, on the first part of the question, I can't really give you a number. It's impossible to estimate. I can give you anecdotal evidence of what we're seeing. When you think about Oral-B iO, for example, $299 toothbrush, very premium item, and obviously we're impacted by the chip shortage just as everybody else. The demand, the consumer demand for that product, despite the price point, is significantly higher than anything we can deliver. That's probably on the extreme end because for chips, there's limited alternatives available. There is some impact. It's just not possible to give you a meaningful number at this point.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Directionally, Nik, which is what leads you to your question, there is no doubt at present that demand is stronger than supply. Andre is absolutely right. I don't know how to quantify it either, but as we

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Address some of the opportunities, and that's how I view it. Within the supply community, there should be upside beyond kind of our internal forecasts and what you might expect. That's assuming, of course, that demand continues at current levels. Relative to Gen Z consumers and you proffered several avenues to reach and delight those consumers, I think all are on the table. There's another group of consumers that we're working to expand our coverage to and we're frankly underdeveloped, and that's the multicultural consumer in the U.S., as an example. The good news is these are the same consumers. The multicultural consumer or the Gen Z population is multicultural by definition.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

In terms of having, you know, a size of prize here that merits consideration of all the choices you mentioned, it's significant, and we're all over it.

[Operator]

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

[Peter Grom, Equity Research Analyst at UBS]

Hey, good morning, everyone. I was hoping to dive into the updated commodity outlook a bit. You know, I know there are a lot of moving pieces here, and Andre, you mentioned, you know, chemicals and diesel are moving higher. You also say that you're not really seeing relief across the other buckets. Just we would be curious, like what are you seeing in commodities like pulp and resin, which seem to be trending marginally lower, at least versus where we were back in September and October?

[Peter Grom, Equity Research Analyst at UBS]

You know, maybe building on that, just on the phasing of gross margin in the second half, building on Steve and Jason's questions earlier, maybe I'm reading too much into it, but your response seems to imply that, you know, Q3 to Q4 gross margin will be under pressure, but an improvement sequentially as pricing builds, you know, productivity ramps and cost pressures are in the base. Based on where things stand now that, you know, you could return to gross margin expansion in Q4 too. You know, I know a lot can change over the next six months, but is that a fair read based on where we are today? Or are there other impacts that I'm not really thinking of that could impact that trajectory? Thanks.

[Andre Schulten, CFO at The Procter & Gamble Company]

To begin with the commodity guidance. Within our guidance, we see 44% increase across all commodity classes. If you take our total basket average, it is up 44%. Chemicals up the highest now, more than 60%. Resins up almost 60%. Pulp up more than 30%, etc. It continues down the line. All of these numbers are in that same range. We see some reduction in resin prices, for example, or in pulp prices from a temporary peak. When we look at Q2 pricing relative to a year ago, resin same quarter last year was $54. It's now $136. When you look at pulp, it's up more than 30%.

[Andre Schulten, CFO at The Procter & Gamble Company]

There is fluctuation in the short term, but the increases year-over-year continue to be very material. From a gross margin standpoint, I leave it at what I've said before. We'll see sequential progress in the gross margin driven by productivity, pricing, and commodity costs coming into the base. I will not go beyond that in terms of giving a forecast. There's just too many moving pieces at this point in time. I'll leave it at that. We'll reiterate, we expect sequential progress.

[Operator]

Next we'll come to Mark Astrachan with Stifel.

[Mark Astrachan, Managing Director, Consumer and Retail Analyst at Stifel]

Yeah, thanks, morning, everyone. Wanted to ask about the state of the consumer through the implied back half guidance. You're gonna get more pricing. Volume comparisons are easy. You raise sales guidance, but basically to the level that you had achieved in the first half of the fiscal year. You know, I wanted to ask, what are the assumptions or what are your views of volumes and of just the general consumer outlook in your two key markets of the U.S. and of China? Maybe just to unpack it, you know, one of the fears I think folks have is you're gonna start lapping stimulus in the U.S., lower income consumer seems a little weaker. You know, does that factor into your thinking there, especially as pricing goes up?

[Mark Astrachan, Managing Director, Consumer and Retail Analyst at Stifel]

In China, you know, there's obviously been lockdowns, there's the Olympics. You know, is that any sort of a consideration as well in terms of your thinking about volume trends there, and maybe a switch from traditional retail to offline or to online as well? Thank you.

[Andre Schulten, CFO at The Procter & Gamble Company]

I'll start by saying the consumer continues to favor our brands. Our categories, again, daily use, essential needs of the consumer in health, hygiene, and cleaning, and the efficacy of our products and brands really helps us with superiority that we can provide to trade the consumer up within our portfolio. As we take pricing, we see a lower reaction from the consumer in terms of price elasticity than what we would have seen in the past.

[Andre Schulten, CFO at The Procter & Gamble Company]

To give you some concrete data, in the U.S., we see on those brands where we've taken pricing in September and October, which are normally highly price elastic, we've seen price elasticity in the range of 20%-30% lower than what we would have expected based on historic data. We take comfort in the strength of our brands, the broad-based growth of the portfolio globally across categories, and the short-term reaction of the consumer as we take pricing, and our ability to combine that pricing with innovation, which actually then stimulates the consumer to trade up in everything that we've seen. We assume.

[Andre Schulten, CFO at The Procter & Gamble Company]

I think we hope that, you know, as some of these stimulus payments phase out, labor force participation will increase, and hopefully one level of income will be replaced by another, to be seen. Everything that we see at the moment, the combination of our categories being essential and relative consumer strength give us confidence for the volume growth also in the second half. The only thing I would say on China, the element that will help us here is hopefully with COVID easing and the regional lockdowns disappearing, that should be a positive driver of growth in China, but too early to confirm, obviously.

[Operator]

Our next question will come from the line of Bill Chappell with Truist.

[Bill Chappell, Managing Director at Truist Securities]

Thanks. Good morning, and thanks for taking my question. Just, you know, on the metric of 75% superiority of your portfolio, obviously it's helped you immensely over the past few years and, in terms of kind of gaining market share, what have you. I think we've been at 75% for about three, if not four years now. Just is that kind of the ceiling, would be one question. Has the pandemic really slowed down your R&D pipeline, kind of with trying just to fill the supply chain, not wanting to roll out as many new products or, you know, just any color around that.

[Bill Chappell, Managing Director at Truist Securities]

Is this as good as it gets or can we expect that to move up to a higher number over the next few years as you kind of re-ramp up R&D? Thanks so much.

[Andre Schulten, CFO at The Procter & Gamble Company]

Yeah. I think the numerical stability of 75% might be misleading here, because it's not static at all. Once we reach in a category, call it 80%, 90% of superiority, we reset the benchmark, to ensure that we look to the next frontier in terms of where the consumer would go, what really is relevant here for the consumer. One example on single unit dose, for example, we've changed the benchmark from a competitive single unit dose offering to actually test whether our Tide PODS are strong enough to incent consumers to trade up from liquid detergent to single unit dose. That's the new measure. When you change that measure, the percentage decreases, which is implied and is the intent. The strategy of superiority is really dynamic.

[Andre Schulten, CFO at The Procter & Gamble Company]

If we were ever to reach 99%, we would have done something wrong because we would have not looked at the external environment and as it evolves. Jon, anything you wanna add here?

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Just to the point of Bill's question on innovation, we've called out many times our supply organization. Our innovation organization deserves tremendous credit. We don't contribute disproportionately to market growth across our breadth of categories, and as a result, gain share over the past three, six, and 12 months in nine out of 10 categories without an incredible innovation capability and effort. One of the first things we did as we were meeting every morning, literally daily when COVID started, was to figure out what were the health protocols that would allow us to get our R&D colleagues back in the office working together, collaborating, innovating, creating superior offerings as quickly as possible. There are certainly challenges, but they've done a tremendous job of keeping this pipeline intact.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

I've never felt better about our innovation capability and our ability, as Andre describes, to keep raising the bar on superiority.

[Operator]

Our next question will come from the line of Chris Pitcher with Redburn.

[Chris Pitcher, Partner, Consumer Analyst at Redburn Atlantic]

Thank you very much for the question. Just going back to China. Could you say if in this environment you're seeing increased local competition rather than just a softer market, and especially in reference to, say, skin, hair, and fabric? If so, whether this competition is more promotional-led, as you may have suggested, or whether you're seeing an improvement in local product quality and functionality. In the context of China looking to build its own domestic production capabilities, can you just confirm what percentage of your sales are made in the mainland? Thanks.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Almost all of our products that are consumed in China are made in China. Local competition is strong and continues to get stronger, which is a good thing. It's a constructive force in the market. It leads to market growth and expansion. It leads to positive consumer experiences with a category or a segment, and it's something that we welcome. I don't have specific numbers for you in terms of progress of local versus international offerings, but that's current status. I know it's not why you asked your question, but there have been understandably a fair number of questions on China. I would just draw your view, as Andre said earlier, importantly. At any point in time, at any quarter, we're gonna have challenges. Those challenges so far haven't led to major business loss.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

They've led to growth slowdown in some cases, which we fully offset in other parts of the world. It's a pretty incredible feat. Sorry for the self-congratulatory tone, but I'm really congratulating the broad organization. To have flat growth in a quarter in your second-largest market and deliver over 6%, top-line growth, it really speaks to the strength of the portfolio, the strength of the strategy, which I'll come back to at the very end of this call.

[Operator]

Your last question will come from the line of Kaumil Gajrawala with Credit Suisse.

[Kaumil Gajrawala, Managing Director, Equity Analyst at Credit Suisse]

Thank you everybody. Good morning. Two questions, one following up on Mark's question about the state of the consumer. Obviously, it's healthy at the moment. Your view is that it continues to stay healthy. Can you talk a little bit about any guardrails you may have in place in case that changes quickly, in case the impact of inflation really starts to turn on, impact the consumer. Obviously, there's stimulus, child tax credits, these sorts of things. Secondly, can you provide a little more detail on what pricing is going to look like outside of the United States versus domestically, specifically so that as we start to see the data coming through in the coming months, we have a good understanding of what we're seeing here and how it may compare to what's happening elsewhere. Thank you.

[Andre Schulten, CFO at The Procter & Gamble Company]

Yeah. I'll start. I'm sure Jon has a few points to add. On the consumer state, I think in terms of guardrails, what I tell you, the strongest guardrails and mitigations we have are the strength of the portfolio. We're innovating across price tiers. We are building pricing out in a way that price tiers remain accessible for the consumer. Key cash outlays remain accessible. Within the portfolio that we have, depending on the strength of the consumer, they will find an offering that matches their affordability level, their cash outlay level, and still give them a superior performance versus the competitive peer set. Important to note that superiority does not mean that we're trying to trade up the consumer or trying to innovate only at the top end of the portfolio.

[Andre Schulten, CFO at The Procter & Gamble Company]

Superiority is defined as superiority at each price tier we're competing in. The price ladder remains intact, and we innovate across, and that's probably the best protection we can offer at this point in an inflationary environment. The pricing we take outside the U.S. is very similar to what you see in the U.S. Broad range across categories, and about mid-singles is what I would tell you. In addition to that, we're taking pricing for significant FX deterioration in some markets, mainly Turkey to mention, to recover short-term margin there. Broadly, I would guide you to mid-singles around the world on 60%-70% of the portfolio, similar to what we have done.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

I just have a couple closing comments, one on pricing. Remember, pricing is an inherent part of our business model. As an innovation-centered company, we aim to create products that address better every day consumer needs and problems, and can typically command some pricing while increasing the overall value proposition to consumers with those more efficacious offerings. Pricing has been a positive component of our top line for 42 out of the last 45 quarters and 17 out of the last 18 years. While the level of pricing we're talking about here, to be fair, is typically a different level, this is not a dynamic that we're unfamiliar with. As Andre said earlier, we certainly have significant historical and recent experience in developing markets. None of that's a guarantee, but this is not new territory.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

Last thing I wanna leave you with, there will be bumps in this road. There will be cases where we take pricing, and we either encounter the consumer reaction that some of you are rightly looking to, or a competitive reaction. There is no doubt in my mind that there will be bumps in this road. So far, it's going very well. Related to that, there has never been more volatility that we're having to manage across the geopolitical spectrum, the regulatory spectrum, the health spectrum, the supply spectrum, the labor spectrum. I guarantee you, as we said in the last quarter discussion, that we will encounter sources of volatility and degrees of volatility that sitting here today we can't imagine. That's been true each day, week, and month of the last two years.

[Jon R. Moeller, President and CEO at The Procter & Gamble Company]

When you look at any one variable or one scenario, it's difficult to find relevance. My encouragement is to reflect back to strategy, portfolio, ability to execute, to identify those companies that will get through this the best, albeit with bumps on the road. I think we've demonstrated thus far incredible strength of portfolio, of strategy, of execution, and we're committed to keep that going. We're here the balance of the day. John is, Andre is. Don't hesitate to contact us.

[Andre Schulten, CFO at The Procter & Gamble Company]

Thanks, everyone. That concludes the call for today. Thank you for joining us.

[Andre Schulten, CFO at The Procter & Gamble Company]

Have a great day.

[Operator]

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Participants

Executives

• Andre Schulten, CFO
• Jon R. Moeller, President and CEO

Analysts

• Bill Chappell, Managing Director at Truist Securities
• Chris Pitcher, Partner, Consumer Analyst at Redburn Atlantic
• Christopher Carey, Head of Consumer Staples Research, Senior Equity Analyst at Wells Fargo Securities
• Dara Mohsenian, Beverage, Household. Products, and Food Analyst at Morgan Stanley
• Jason English, Managing Director, Equity Research Analyst at Goldman Sachs
• Kaumil Gajrawala, Managing Director, Equity Analyst at Credit Suisse
• Kevin Grundy, Equity Research Analyst, Consumer Staples at Jefferies
• Lauren Lieberman, Managing Director and Equity Research Analyst at CHPC & Beverages
• Mark Astrachan, Managing Director, Consumer and Retail Analyst at Stifel
• Nik Modi, Co-Head of Global Consumer & Retail Research at RBC Capital Markets
• Peter Grom, Equity Research Analyst at UBS
• Robert Ottenstein, Senior Managing Director, Head of Global Beverages and Household Products at Evercore ISI
• Stephen Powers, Managing Director and Senior Equity Research Analyst, Head of US Consumer Staples at Deutsche Bank
• Wendy Nicholson, Co-Head of Global Consumer Equity Research at Citi
• Analyst at JPMorgan