Q1 FY2027 results
| Metric | Result | Change |
|---|---|---|
| Organic sales growth | 4.0% | Not stated |
| Volume growth | 2.4 points | Not stated |
| Core earnings per share | $2 | Up 1 point |
| Core gross margin | Down 150 basis points | Versus prior year |
| Free cash flow productivity | 93% | Not stated |
Guidance and outlook
- We continue to expect sales growth of 1% to 3%.
- Our bottom line guidance is for core EPS growth of 0% to 3% versus prior year.
- We now expect that our core effective tax rate will be in the range of 20% to 21%.
- We expect capital spending will be between 4.5% to 5.5% of sales.
- We are forecasting free cash flow productivity at 85% to 90% for the year.
How management sounded
Positive (+6 on our -10 to +10 scale). Management expressed confidence in their execution and category growth but emphasized volatility and significant cost headwinds that require a balanced approach. Management sounded more upbeat than on 8% of the 190 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.
Q&A summary
Operating Leverage
Asked: Lauren Lieberman of Barclays asked if the strong margins at this volume level are structural or quarter-specific.
Answer: Management noted it is a combination of structural improvements like productivity and SG&A leverage, alongside some quarter-specific benefits like partial flow-through of commodity costs.
Commodity Costs
Asked: Dara Mohsenian of Morgan Stanley asked how the company plans to handle the $1.4 billion commodity headwind.
Answer: Management plans to use record productivity levels, pricing with innovation, and time to recover costs while maintaining investment in the business.
China Performance
Asked: Nik Modi of RBC Capital Markets asked about the strong performance in China despite the poor macro environment.
Answer: Management attributed the success to a reinvented distributor network, a social-first marketing machine, and strong execution, noting that Baby Care growth was particularly high.
Guidance Deceleration
Asked: Kaumil Gajrawala of Jefferies asked why the company expects deceleration in the second quarter despite strong current momentum.
Answer: Management cited volatility, potential fuel and energy cost impacts on consumers, and base period dynamics as reasons to remain cautious.
What to watch before the next call
- The impact of persistent high fuel and energy costs on consumer demand throughout the winter.
- The evolution of commodity prices, specifically oil, which management assumes at $100 per barrel.
- The company's ability to reach its goal of 80% of top U.S. customers holding or growing share by the end of the calendar year.
