Can Procter & Gamble's Pricing Power Keep Earnings Buoyant in 2025?
PG's pricing strategy extends beyond price hikes and controls, complemented by ongoing product innovations and launches that drive value and validate premium positioning. Procter & Gamble has innovations across all price tiers within the Fabric Care Tight, Oxy Boost and Power Pods. The company is focused on optimizing skincare pricing in China, complemented by super-premium innovations under the SK-II portfolio, which is aimed at expanding its market share in the region.
In the recent past, the company has successfully navigated elevated commodity costs, supply-chain disruptions, inflationary headwinds and currency volatility by its strategic pricing and productivity measures, reaffirming its commitment to steady margin growth. PG's pricing power has also offered resilience in tough times, like the pandemic. The company's goal is to regain pre-pandemic productivity levels, with a target of accomplishing gross savings in the cost of goods sold of up to $1.5 billion, before tax.
In third-quarter fiscal 2025, pricing rose 1% and aided organic sales and gross margin. Our model anticipates pricing gains of 0.6% each for the fourth quarter and fiscal 2025. This is likely to continue bolstering organic sales, which we anticipate growing 1.9% and 2%, respectively, for the fourth quarter and fiscal 2025.
As Procter & Gamble has an extensive portfolio with diverse price points and pack sizes, it continues to evaluate consumer pricing in effective categories and markets to ensure competitiveness. The company targets pricing with innovation and is focused on implementing pricing actions, which are likely to drive sustained growth and profitability.
PG's Competition in Pricing Dominance
Colgate-Palmolive Company CL and The Clorox Company CLX are the major companies competing with Procter & Gamble in pricing strength.
Colgate also leverages its pricing power to aid growth and offset external cost pressures. The company is benefiting from key pricing actions, coupled with its funding-the-growth program and other productivity moves, aimed at driving efficiency and expanding margins. It has revamped its innovation model, leveraged its global scale across price tiers, invested in marketing and reinforced operational capabilities, all to drive brand health and higher household penetration. In first-quarter 2025, Colgate's organic sales were driven by a 1.5% improvement in pricing. We expect the company to benefit from pricing of 2.5% in 2025. Colgate's competitive pricing moves across its premium oral and personal care products will continue to bolster brand strength and retain market share.
Clorox also places strong emphasis on pricing. The company's strategic pricing and cost-saving measures have been boosting gross margin expansion in recent periods. Despite the sales decline in third-quarter fiscal 2025, the gross margin expanded 240 basis points year over year, marking the company's 10th consecutive quarter of margin expansion. Clorox's holistic margin-management efforts, constant product innovations and IGNITE strategy progress well. Clorox's multi-faceted pricing policy includes premium pricing for its core brands, with a focus on premiumization and value for consumers. Our model anticipates price/mix/other to grow 0.2% in fiscal 2025.
PG's Price Performance, Valuation and Estimates
Procter & Gamble's shares have lost around 3.8% year to date compared with the industry 's 1.8% dip.
From a valuation standpoint, PG trades at a forward price-to-earnings ratio of 22.67X, compared with the industry's average of 20.19X.
The Zacks Consensus Estimate for PG's fiscal 2025 and 2026 EPS indicates year-over-year growth of 2.9% and 3.6%, respectively. The company's EPS estimate for fiscal 2025 has been stable and that for fiscal 2026 has moved northward in the past 30 days.
Procter & Gamble currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Procter & Gamble Company (The) (PG): Free Stock Analysis Report
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