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The tides may be turning for Procter & Gamble (PG +3%) as its shares bounce today following an 11% correction from December highs on better-than-expected earnings and sales figures in Q2 (Dec). Volumes also improved slightly, ticking 1% higher yr/yr and returning to positive growth following flat volumes last quarter. Meanwhile, revenue squeaked out a gain in Q2, flipping positive after back-to-back quarters of negative growth.

While PG kept its FY25 (Jun) outlook unchanged despite the decent upside in Q2, it is largely due to increasing FX headwinds. After initially anticipating a net headwind of around $500 mln from commodity costs and FX fluctuations, PG's outlooked improved modestly last quarter, predicting an approximately $200 mln commodity cost headwind while FX was expected to be neutral. However, today, PG essentially flipped back to its initial outlook, predicting a net headwind of roughly $500 mln, clipping $0.20 off EPS.

• In Q2, most categories experienced positive volume growth on a modest uptick in net sales, supporting a 2.1% bump in overall revenue yr/yr to $21.88 bln. Organic volumes, which back out the impact of M&A, and organic sales, which excludes FX and M&A impacts, were also improved over last quarter, up 1 pt, with no category slipping into negative territory across either metric, supporting a 2% and 3% uptick, respectively.
• Beauty and Health Care were the laggards in the quarter, delivering flat organic volume growth, mired by sticky headwinds in China. However, organic sales in China fell by just 3% yr/yr in Q2, far better than the 16% drop posted in Q1 (Sep).
• Conversely, Grooming, Fabric & Home Care, and Baby, Feminine & Family Care enjoyed a decent lift in organic volumes, expanding by at least 2%, with a 4% jump in Feminine & Family Care. Highlights include sustained demand for the Gillete banner, outsized growth in North America, and consistent growth in PG's Family Care division. Baby Care was a notable weak point, with organic sales falling by low single digits on volume compression. This category continues to endure pressure as it remains subject to decreasing birth rates.
• PG reiterated its FY25 guidance, projecting adjusted EPS of $6.91-7.05 and revenue growth of +2-4%. While PG is tracking below these targets thus far in FY25, it continues to expect stronger results in the back half of the year. Also, if not for the impact of FX fluctuations, PG would have been in a position to possibly raise its earnings outlook for the year. Given this, the market is slightly more forgiving today, focusing on the quarter's positives, particularly surrounding improving domestic and international demand.

PG's Q2 performance showcased a stable consumer and price promotion environment, a continuation of the trends that unfolded last quarter. Private label shares continue to flatline or decline in the U.S. and Europe, underscoring consumers' capacity to spend slightly more on name brands regarding household durables. As a result, we continue to like PG for the long term as its portfolio touts incredible brand recognition, often offering products with noticeable upside to competing and private label brands.