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Household staple giant Procter & Gamble (PG) is amid a muted response today after falling a hair shy of analyst revenue estimates in Q1 (Sep), primarily reflecting deteriorating economic conditions in China and the Middle East. PG's consolidated volumes were flat from the year-ago period, a minor deceleration from the +1% delivered last quarter. PG did reiterate its financial targets for FY25 (Jun). Also, when backing out currency fluctuations and M&A impacts, volumes and sales were 1% and 2% higher yr/yr, respectively.

• Categories were mixed in Q1. Grooming and Fabric & Home Care enjoyed positive volume growth of 4% and 1%, respectively. Conversely, Beauty, Health Care, and Baby, Feminine & Family Care encountered modest yr/yr volume compression. When combined with unfavorable FX impacts across the board, the result was a 0.6% drop in revs yr/yr to $21.74 bln, underperforming analyst expectations of modest growth.
• Geographically, the Asia Pacific, Middle East, and Africa regions contributed most to the tepid numbers, delivering a low single-digit decline in organic sales. China was particularly bleak, with organic sales plunging by 16%. Management stated it will likely take a few more quarters before China returns to growth. On the bright side, North America, Europe, and Latin America each exhibited relative strength, boasting low to mid-single-digit organic sales growth, helping offset much of the weakness across China and the Middle East.
• For the second straight quarter, PG snuck by bottom-line estimates, delivering EPS growth of 5% yr/yr to $1.93. The company's earnings beat reflected productivity improvements during the quarter and a 30 bp bump in core operating margins, helping take the sting out of ongoing commodity cost and FX headwinds.
• PG expects macroeconomic conditions to remain volatile for the near future. Still, despite this, the company reiterated its FY25 guidance, projecting adjusted EPS of $6.91-7.05, revenue growth of +2-4%, and organic revenue growth of +3-5%. A disappointing development was that PG kept its EPS outlook unchanged despite an improving commodity cost headwind, producing a $200 mln drag instead of $300 mln, as other operating income pressures intensified moderately. PG also reaffirmed its headwinds will be front-half weighted.

The volatility stemming from China and the Middle East is generating angst amongst investors today. However, when removing these markets' influence on Q1, PG's performance was decent. North America, Europe, and Latin America maintained healthy organic sales growth yr/yr despite lapping unfavorable numbers. Volumes are holding despite PG's decision to keep its pricing strategy, underpinning brand loyalty and a strong preference for quality surrounding everyday essentials, even as inflationary pressures squeeze consumer budgets. While the uncertainty over when headwinds will ease could keep selling pressure active on PG, the company remains confident in its continuous market share momentum in the U.S. and other key markets, keeping it an attractive buy over the long term.