P&G Meets Estimates But $1B Tariff Hit Weighs on Shares
Consumer goods giant reports in-line Q2 results while flagging trade policy headwinds. Stock dips 2% despite maintained guidance.
Procter & Gamble delivered exactly what Wall Street expected. And that wasn't quite enough.
The consumer goods behemoth reported fiscal Q2 revenue of $22.21 billion Wednesday morning, up 1.5% year-over-year and essentially in line with the $22.29 billion consensus. Adjusted earnings of $1.88 per share beat estimates by two cents. Margins contracted, but not dramatically.
Shares dropped 2% to $143.31 in early trading. After a 40%+ gain in 2025, P&G investors wanted acceleration. What they got was maintenance—and a $1 billion tariff headwind that management can't ignore.
The Tariff Math
CFO Andre Schulten laid out the damage during the earnings call.
Trade policy changes will cost P&G approximately $1 billion in pretax profit during fiscal 2026. That breaks down to $200 million from Chinese imports and another $200 million from Canadian goods, with the remainder spread across various supply chain disruptions.
For a company generating roughly $11 billion in annual operating income, $1 billion represents a meaningful hit—about 9% of profits erased by policy decisions outside management's control.
P&G manufactures products globally and sells them everywhere. Tide detergent, Pampers diapers, Gillette razors, and Charmin toilet paper ship across borders constantly. When tariffs rise, either margins compress or prices increase. Neither outcome is good for consumer sentiment.
"We're working to mitigate the impact through sourcing adjustments and productivity initiatives," Schulten said. Translation: P&G will try to pass costs along to consumers, but carefully enough not to kill demand.
The Guidance Dilemma
Management maintained full-year adjusted EPS guidance of $6.96 at the midpoint, unchanged from prior quarters. Revenue growth should land around 2-4%.
That's... fine. P&G is a defensive stock, not a growth story. Investors own it for stability and dividends, not earnings surprises. But the maintained guidance despite tariff headwinds implies the company is absorbing more cost pressure than originally expected.
Operating margin of 24.2% in Q2 fell from 27.2% in the year-ago period. Some of that reflects mix shift and promotional spending; some reflects tariff-related input costs. Either way, the direction is wrong.
CEO Shailesh Jejurikar framed it optimistically: "Our results keep us on track to deliver within our fiscal year guidance ranges for organic sales growth, core EPS growth and adjusted free cash flow productivity in a challenging consumer and geopolitical environment."
He's not wrong. P&G is delivering. But the environment is getting harder, not easier.
Category Performance
The beauty segment was the bright spot, with skincare sales growing mid-single digits. Premium products like SK-II and Olay continued gaining share in the US and China—consumers still splurge on self-care even when tightening other spending.
Fabric and home care grew low-single digits, with Tide and Downy holding share despite private-label competition. P&G's scale advantages in detergent manufacturing create cost structures that store brands can't match.
Baby care struggled. Pampers sales were roughly flat as birth rates remain depressed globally and competitors offer cheaper alternatives. This category has been challenging for years, and there's no easy fix.
Grooming declined slightly, continuing the secular shift away from traditional razors toward electric alternatives and beard culture. Gillette remains profitable but isn't a growth driver anymore.
The Restructuring Reality
P&G announced in mid-2025 that it would eliminate up to 7,000 non-manufacturing positions by the end of fiscal 2027, expecting to incur $1 billion to $1.6 billion in restructuring charges.
That program is underway. The cost savings will eventually offset tariff headwinds, but the timing doesn't align perfectly—restructuring charges hit now while benefits accrue later.
For long-term shareholders, this is exactly how P&G should manage the business: invest in brands, optimize costs, and return excess cash to shareholders. The company has raised its dividend for 68 consecutive years and isn't stopping now.
For traders, the lack of near-term catalysts makes P&G a hold rather than a buy. The stock trades at 24 times forward earnings, a premium to the consumer staples sector, but the growth profile doesn't justify chasing it here.
The Bigger Picture
P&G's tariff commentary matters beyond one company's earnings.
If P&G—with its scale, supply chain sophistication, and pricing power—faces $1 billion in tariff costs, smaller consumer goods companies are dealing with proportionally larger hits. The broader economy will feel these effects as they work through the system.
Shoppers might not notice immediately. P&G tends to raise prices gradually, and consumers adjust slowly. But the cumulative effect of higher costs on household goods adds to the affordability squeeze many families already feel.
That's the macro trade-off tariffs create: protection for domestic manufacturing at the cost of higher consumer prices. Whether that trade-off makes sense depends on your perspective—but P&G shareholders are clearly paying part of the bill.