Good morning, and welcome to Procter & Gamble's Quarter End Conference Call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its Investor Relations website, a full reconciliation of non-GAAP financial measures. Now, I will turn the call over to P&G's Chief Financial Officer, Andre Schulten.

Good morning, everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer, and Jon Chevalier, Senior Vice-President, Investor Relations. I'll start with an overview of results for the October to December quarter, Jon will add perspective on our recent results and strategic focus areas and capabilities. We'll close with guidance for fiscal '24, and then take your questions. October to December was another strong quarter. Execution of our integrated strategy drove solid sales and market-share results and another quarter of strong margin progress, delivering strong earnings and cash results for the quarter. The strong results we've delivered in the first half of fiscal '24 enable us to raise our outlook for core earnings per share and keep us on track to deliver within our fiscal year guidance ranges for organic sales growth, cash productivity and cash return to shareholders. We continue to see the upper range on organic sales and core EPS as likely outcomes for fiscal '23 - '24. So, moving to second quarter numbers, organic sales grew 4%, volume rounded down to a decline of one point as continued volume acceleration in North America and Europe focused markets was offset by softer shipments in Greater China, Eastern Europe and Middle East, Africa regions due to local issues in select markets. Pricing contributed four points to sales growth, consistent with the guidance we provided, while mix was neutral to organic sales growth. Growth across categories continues to be broad-based with eight of ten product categories holding or growing organic sales this quarter. Home care, hair care and grooming grew sales in high single digits. Fabric care, family care, feminine care and oral care were up mid-single digits. Baby care was in line with prior year. Personal health care was down low singles against a very tough comparison and a late developing cold and flu season this year. Skin and personal care was down mid singles due to SK-II in China. Growth was also broad-based across geographies with North America, Europe, Asia Pacific focus markets and Latin America and Europe enterprise markets each growing organic sales. Focus markets grew 3% for the quarter and enterprise markets grew 7%. Organic sales in North America grew 5% with four points of volume growth. Over the last five quarters, volume growth in North America has been minus three, flat, then 2% growth, plus 3% and now plus 4%; strong acceleration well ahead of the underlying market trends. Europe focus markets were up 7% with three points of volume growth. As expected, both regions saw a step down in pricing contribution to sales growth as a large portion of price increases from last year have annualized. Importantly, volume accelerated in both regions to partially offset the pricing impact. Latin America delivered another very strong quarter with 17% organic sales growth, continued strong results in these regions. There are some targeted issues affecting other markets. Greater China organic sales were down 15% versus prior year. Underlying market growth was down mid to high single digits as consumer confidence weakened further. The SK-II brand in Greater China was down 34% due to soft market conditions and a temporary headwind for Japanese brands in the market. Our consumer research indicates SK-II brand sentiment is improving and we expect to see sequential improvement in the back half. Underlying market trends have softened in some Europe enterprise and Asia Pacific, Middle East, Africa countries such as Egypt, Saudi Arabia and Turkey, following multiple rounds of pricing to offset inflation and due to heightened tensions in the Middle East. Global aggregate value share was up 40 basis points versus prior year with 28 of our top 50 category country combinations holding or growing share. In the U.S., all outlet value share was up 20 basis points versus prior year. U.S. volume share was up 50 basis points reflecting strong volume growth. Value share in European focus markets was up 90 basis points over the past three months. In summary, North America, Europe focus markets, Asia Pacific focus markets and Latin America, which combined represent three-quarters of company sales, delivered over 6% of organic sales growth in quarter two, with three points of volume growth and three points of price mix. These same markets grew 9% in quarter one with around two points of volume growth and seven points of price mix. Continued strong organic sales growth with accelerating volume growth to mitigate the anticipated annualization of pricing, consistent with our guidance. The balanced 25% of company sales, including Greater China, Eastern Europe and Middle East Africa, were impacted by local market issues we described. Quarter two organic sales for this group were down five points versus prior year. We expect most of these effects in these regions to be temporary or annualizing, and SK-II consumption is sequentially improving. We continue to expect China market growth to improve, and over time return to mid singles, and we expect market pressures in the Middle East and Turkey to ease over time. Moving to the bottom line, core earnings per share were $1.84, up 16% versus prior year. On a currency neutral basis, core EPS increased 18%. Core operating margin increased 400 basis points as 520 basis points of gross margin expansion were partially offset by increased marketing investments, wage and benefit inflation, and foreign exchange impacts in SG&A. Currency neutral core operating margin increased 470 basis points. Productivity improvements were a very strong 340 basis points helped to the quarter. Adjusted free cash flow productivity was 95%. We returned $3.3 billion of cash to shareholders, approximately $2.3 billion in dividends and $1 billion in share repurchase. In summary, against what continues to be a challenging and volatile operating environment, strong overall progress in the first half of the year keeping us on track for our fiscal year guidance ranges. Now I'll pass it over to Jon for his perspective.

Thanks, Andre, and good morning, everyone. I'll start by underscoring a few points Andre made in his discussion of the topline trends. Overall, we continue to see strong top line progress, marking the 22nd consecutive quarter of 4% or better organic sales growth, with volume acceleration in key markets and increases in aggregate market shares. This is despite several notable headwinds, which should be temporary. Tensions in the Middle East will hopefully ease. Enterprise market volume impacts following price increases are usually temporary. While we can't talk specifics of future pricing in any market, more stable foreign exchange and commodity costs will ideally reduce the need for additional large price increases. I spent six days in China with the team two weeks ago. I met with consumers in their homes, with retail CEOs, and with our team, as well as several government officials. In my view, the long-term China opportunity remains intact, although the near term is likely to present some challenges. We'll see what happens with the global cough cold season as a soft start to the season either reverses or eventually annualizes. There’s no guarantee of immediate bounce back in any of these, but there is reason to believe they will improve over time. In addition to continued aggregate top line progress, we have a very strong bottom line, with mid-teens core earnings per share growth two quarters in a row, while increasing investments in innovation, brand building, and market growth. Our team continues to execute our strategy with excellence, enabling strong results over each of the past five years, pre-COVID, during COVID, and through a historic inflationary and pricing cycle. I want to thank them both for what they delivered and for what they're working to continue to accomplish. Our integrated strategy remains unchanged. We have a focused portfolio of products in daily use categories where performance drives brand choice. The portfolio is performing well, delivering broad-based growth across nearly all categories and most geographies for several years. The announcements we made in December to change our go-to-market approach in Argentina and Nigeria will further sharpen our focus and strengthen our value creation potential. This exemplifies the dynamic nature of our strategy and our desire to aggressively allocate resources to where they create the most shareholder value. The next strategic element is our ongoing commitment to investing in irresistible superiority through innovation across the five vectors: product, package, brand communication, retail execution, and value, as holistically defined. Leveraging that superiority helps us grow markets and our share in them to jointly create value with retail partners. The plans across the businesses are broader and stronger than at any time in recent history as each team works to increase their margin of superiority and consumer delight. Superior innovations, driven by deep consumer insights and communicated to consumers with more effective and efficient marketing programs, are executed in stores and online in conjunction with retailer strategies to grow categories and our brands, priced to deliver superior value across each price tier where we compete. For instance, the Smooth Tear Charmin Ultra Soft with scalloped edge perforations is a great example of consumer insights driving innovation to improve the in-use experience. Consumer response to the new product has been overwhelmingly positive and is driving word-of-mouth recommendations on social media. Gillette's superior propositions, like the GilletteLabs razor with an exfoliating bar that removes dirt and debris before the blades, continue to drive growth in the global grooming category. GilletteLabs has reached shares greater than 20% in markets like Spain and France, and is building momentum in the U.S. and China. The global grooming category is on track for $1 billion of retail sales growth this fiscal year, with Gillette driving two-thirds of that increase, well ahead of our global share. Superior innovations like Dawn Power Wash and Dawn EZ-Squeeze in the U.S. and Fairy Power Spray and Fairy Max in Europe are disproportionately driving market growth in hand dishwashing, with value share in the U.S. approaching 67%, while being merely 50% across Europe-focused markets. The third strategic element is productivity improvements in all of our operations to fund investments in innovation, brand building, and market growth, as well as to mitigate cost and currency challenges and expand margins while generating cash. We're reaccelerating productivity back to pre-COVID levels with an objective for gross savings in costs of goods of up to $1.5 billion before tax. Visibility to more savings opportunity is increasing, enabled by platform programs with global applications across categories, like supply chain 3.0. We’re working with retailers on the totality of the supply chain, end to end, instead of simply trying to optimize each piece. One example is using data and machine learning algorithms to optimize truck scheduling to minimize idle time for drivers. We're also utilizing AI tools for optimizing fill rates and for dynamic routing and sourcing optimization, with projected savings opportunities of $200 million to $300 million across these areas. We have visibility into savings from improved marketing productivity, which involves greater efficiency and effectiveness, avoiding excess frequency, and reducing waste while increasing reach. We're taking targeted steps to reduce overhead as we digitize more of our operations. The team has delivered strong cost savings in the first half of the year and plans to build on this momentum. The next priority is to create a constructive disruption of ourselves and our industry. We maintain a willingness to change, adapt, and create new trends, technologies, and capabilities that will shape the future of our industry and extend our competitive advantage. We continue to be a constructive disruptor of brand building, in-housing more of the media planning and placement activity and using our proprietary tools alongside consumer data to increase the effectiveness and efficiency of our communication. We're disrupting traditional lab-based innovation models to dramatically increase the speed and breadth of discovery. Last but not least, we continue to design and refine an empowered, agile, and accountable organizational model, as well as an increasingly diverse organization, enabling us to better serve a diverse set of consumers. So, we are making strong progress across all strategic pillars with significant opportunities ahead of us. There is no reason to stand still, as illustrated by the four focus areas we've outlined previously. Supply Chain 3.0 is delivering productivity, as we just talked. We're also driving improved capacity planning, greater supply agility, flexibility, data transparency, scale, and resilience all the way up and down the supply chain, inclusive of our retail partners. All of this is driving higher quality, increased supply assurance, and higher on-shelf availability of our products, and of course, better cash and cost structures. These programs improve superiority with consumers and further strengthen what is already the top-ranked supply chain as recognized by our retail partners and third-party industry surveys. Environmental sustainability involves superior propositions for consumers, customers, and shareholders that are sustainable, driving sales and profitability while reducing the footprint of our operations and enabling consumers to reduce their footprint as well while innovating to deliver cross-industry solutions for pressing challenges. An example of this is the four-chamber Ariel Platinum PODS innovation that we launched in a new cardboard package, extending our superiority advantage in product performance while improving sustainability by enabling excellent wash results even in cold water, already contributing to a two-degree Celsius reduction in wash temperatures in Europe against a five-degree target. We are also extending packaging superiority with a more attractive and sustainable cardboard box. Digital acumen is all about leveraging data and digitization to delight consumers, streamline the supply chain, increase quality, and drive productivity, all driving shareholder value. Lastly, we focus on delivering a superior value equation for all employees, inclusive of all genders, races, ethnicities, sexual orientations, ages, and abilities for all roles, ensuring we can continue to attract, retain, and develop the best talent and are optimally positioned to serve all consumers. These four focus areas are not new or separate strategies; they simply strengthen our ability to execute the overall strategy. Our strategic choices surrounding portfolio superiority, productivity, constructive disruption, and organization work together and reinforce each other. We remain committed to this integrated strategy, with a focus on delivering irresistibly superior offerings to consumers and retail partners fueled by productivity. We are as confident as ever in our strategy and our ability to drive market growth and deliver balanced growth and value creation to delight consumers, customers, employees, society, and shareholders. Now back to Andre for guidance.

Thanks, Jon. As I mentioned, we expect the environment around us to continue to be volatile and challenging, with input costs, currencies, consumer dynamics, retailer preferences, and geopolitical factors all in play. However, our strong first half results enable us to raise or maintain key guidance metrics for the year. We're maintaining our guidance range for organic sales growth of 4% to 5% for the fiscal year. This outlook includes a normalization in underlying market growth rates that we began to see in our second quarter results as the market lapsed the last waves of cost recovery pricing. For P&G, we expect the pricing contribution to topline growth to reduce by an additional 1 to 2 points in the back half of the year. We will continue to price for new innovations when warranted and to mitigate FX impacts. On the bottom line, enabled by very strong earnings growth in the first half of the year, we're raising our outlook for fiscal '24 core EPS from a range of 6% to 9% to a range of 8% to 9% growth versus last fiscal year. This guidance implies slower bottom-line growth in the second half. As we highlighted last quarter, the second half of the fiscal year will see less pricing benefit as we annualize more prior year increases. We will also see less of a commodity cost benefit in the second half. Wage and benefit inflation will continue throughout the supply chain and in our direct costs, and FX headwinds will increase versus the first half of the fiscal year. As I mentioned, we continue to expect organic sales and core EPS growth toward the upper end of the renewed guidance ranges. We estimate commodities will be a tailwind of around $800 million after tax in fiscal '24 based on current spot prices. This is consistent with the outlook we provided last quarter. We continue to expect foreign exchange will be a headwind of approximately $1 billion after tax for the fiscal year. The vast majority of this impact is driven by Argentina and is heavily skewed towards the back half of the year. This outlook is based on a forecast for continued significant devaluation of the Argentine Peso, which we expect to largely offset with appropriate price increases. We now expect higher net interest expense of approximately $100 million after tax versus prior year. General inflation and higher wage and benefit cost pressures are also earnings headwinds for the year. We anticipate adjusted free cash flow productivity of around 90%. We expect to pay more than $9 billion in dividends and repurchase $5 billion to $6 billion in common stock, with plans to return $14 billion to $15 billion of cash to shareholders during this fiscal year. This outlook is based on current market growth rate estimates, commodity prices, and foreign exchange rates. We do not anticipate significant additional currency weakness, commodity cost increases, geopolitical disruptions, or major production stoppages outside the guidance ranges. Finally, we will be closely watching the more volatile regions we mentioned earlier, including the health of the China market, and we'll keep close tabs on competitive dynamics to ensure P&G brands remain superior value for consumers and retailers. Now, I'll hand it back to Jon for closing thoughts.

We continue to be very pleased with the strong results that P&G people are delivering in a challenging operating and competitive environment. Continued excellent execution of an integrated market strategy. I want to thank each of them for that. While we expect volatile consumer and macro dynamics to continue, we remain confident that doubling down on the strategy that has yielded strong results is the best path forward. We are committed to delivering balanced top and bottom-line growth and value creation for shareholders. With that, we’ll be happy to take your questions.

Our first question will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

Hi, good morning, guys. So just wanted to focus on the back half. Clearly, the 4% Q2 core sales growth result wasn't as strong as the 7% Q1 delivery, which was a very robust result. So obviously some quarterly volatility here. Can you just give us some perspective for the fiscal back half relative to Q2 in light of that first half volatility as you think through some of the key geographies and volume versus price mix, and some of the temporary impacts Jon mentioned? And then just same question on EPS basically, obviously very strong first half that continued in Q2, full year guidance implies a more muted second half. So, is there some conservatism baked in there? Help us understand that. I know Andre touched on it, but maybe give us a bit more detail there on the back half from an earnings perspective. Thanks.

Yes, good morning, Dara, let me start and Jon will add. On the top line, if you look at the first half, we are right in line with what we're projecting for the year, an average of 5%, and we expect about 5% for the back half. We see volatility, as you pointed out in some geographies that we mentioned in the script. The core point, though, is the core geography — 75% of the sales are performing very well. We continue to see acceleration in volume growth in North America with 4% volume growth, and 5% sales growth. Europe is very strong, Latin America is performing well. We continue to see volume acceleration in most places. So that gives us confidence that that projects well for the second half of the year. We also expect some of the volatility that we experienced in quarter two to dissipate or at least improve in the second half. The SK-II sentiment is improving based on our consumer research in China, and we are continuing to drive innovation, equity investment and really relying on our most loyal and passionate user base to help amplify that messaging, which is working well. So, we expect the effects to improve year-over-year and quarter over quarter. From an enterprise market standpoint, we also view the pricing impacts that are affecting some of the markets, like Turkey, to disappear over time as pricing in the market is established, competitive pricing catches up and then the impact of the tensions in the Middle East certainly hopefully will improve as well. So, very strong continued performance in the core markets, which are 75% of the sales, and we expect somewhat improving trends and stabilization in the other 25%. On the EPS side, very strong performance in the front half, 17% in quarter one, 16% in quarter two, sets us up well for the upper end of their guidance range, which is reflected in the tightening of our guidance. However, to keep in mind, we see a reversal of a number of effects that have supported the first half results. We saw the majority of the commodity help flow through in the first half, and this is part of the improvement in quarter two EPS. We see the flow through happening faster than we would have anticipated in some instances, so that leaves less of a contribution for the second half. We also have the majority of the foreign exchange impact in the second half, about 75% of FX hurt of the $1 billion will hit the second half. As we indicated, the majority of that is Argentina, so we will try to offset it via appropriate pricing. Nevertheless, the growth impact is tilted towards the back half. Price mix contribution will ease. We saw still significant contributions in the first half, that will lower by 1 point to 2 points in the back half, which also has an impact on EPS growth. Lastly, we continue to see wage inflation affecting our own operation as well as in our supply chain flowing through. Now, with that being said, if everything goes well, could there be upside? Sure. But we believe that guidance is appropriately reflecting the potential variability here. So those are the core drivers. Jon, do you have any perspective?

I have nothing to add on Andre's bottom line perspective. I would just reiterate one thing and add one thing on the top line. There are two questions that we've been discussing as we’ve gone through the first half of the year. The first relates to our ability to reaccelerate volume, which we've talked about several times in this conversation this morning. I just want to reiterate how encouraging that progress has been. We've said it before, but it's worth saying again that in our largest market, North America, in the past five quarters, we’ve gone from minus three, to plus two, to plus three, and now plus four. Europe, which tends to be fairly price sensitive, had volumes up 3%. This gives us confidence in terms of the momentum of the business on a forward basis. The other thing I would call out that adds to this discussion is the breadth of the top line progress that the team has been making. Eight out of ten categories held or grew sales in the quarter that we just completed. Twenty-one of our top twenty-five brands did the same. If you look at our top twelve brands, nine of those are growing at high singles or better rates. This is all inclusive of the challenges we’re managing around the world. So this gives us confidence that the top line growth that we've been delivering should continue, just as Andre said, and that should provide the ability to continue to deliver decent levels of bottom-line growth as well.

The next question comes from Bryan Spillane of Bank of America. Please go ahead.

Thanks, operator. Good morning, everyone. I want a clarification, Andre, to your answer to Dara's question. And then I have a question. So, the clarification: I think when you responded regarding organic sales growth for the back half and tracking to the year, the 5%, is it that Procter is tracking to 5% organic sales for the year? Or were you saying an expectation for 5% organic sales growth for the back half? I wasn't quite sure if you were talking full year or specifically about the back half.

Hi, Bryan. No, what I was talking about was the full-year expectation. So again, we reiterate the range of four to five, but we see the possibility and strong probability that we'll be able to deliver towards the upper end of that range for the fiscal year.

The next question comes from Lauren Lieberman of Barclays. Please go ahead.

Great, thanks. Good morning. So, with the very sizable gross margin delivery this quarter and the outlook for the full year, there’s a ton of reinvestment going back into P&L. This quarter you called out the specifics, but I think that’s pretty well implied for the second half as well. So I was just curious if you could talk a little bit about incremental areas of reinvestment, because the basis points are big and the dollars are even bigger. And so, I don’t know, like, it might sound ridiculous, but it gets to a point where you start to worry externally, is there an excessive amount of reinvestment? So I’d love it, Jon, if you could talk through your perspective on that, on making sure there’s not money effectively being spent less efficiently in the P&L simply because you have that much flexibility. Thanks.

Are you saying, Lauren, that you want 30% core rates for shareholder growth? Just kidding. All right, I'll speak first on this, and I'm sure Andre has some perspective as well. But if you look at the amount of innovation that's coming to market, both currently and in the future, and if you look at the opportunity to fully penetrate households with that innovation in ways that delight them and improve their lives, now is not the time to be pulling back on investments in marketing or commercialization efforts of that innovation. That's where the majority of the incremental spend has come from and will come from. We look very carefully. I don't want to ignore your question on the effectiveness of that spend and continue to see it through the addition of many tools and datasets that allow us to increase the effectiveness of that advertising, increase the return rates of that advertising as you see in our bottom line while increasing reach. So that's what we'll be focusing on. We'll be very disciplined in that effort. Neither Andre nor I nor the rest of the team have any desire to spend money that isn’t working for us.

Yes. To add, we just talked with our team about being very granular about the assessment of ROI so we don’t have good investments that cover for bad investments. So we really go down to the country level, to the brand level, to the channel level when we assess whether we’re getting a pay out on the investments. But the majority of the spend, as Jon said, is really focused on driving market growth. When you think about the opportunities like Fabric Enhancers, for example, we’ve created 100% of the market growth in North America on Fabric Enhancers, and it’s still the biggest opportunity the team has in order to continue to accelerate both our own growth in a constructive way and the market given the low penetration of Fabric Enhancers. Oral-B is another example; with the launch of Oral-B iO10 and we’re also expanding distribution of Oral-B iO3, 4 and 5, we’ve led 70% of global market growth with those launches. Communicating those benefits and driving penetration is a huge opportunity. So do be assured that we look at ROI very carefully. And again, market growth continues to be the main area of focus when we invest incrementally.

The next question comes from Robert Ottenstein of Evercore ISI. Please go ahead.

Terrific, thank you very much. I was wondering if you could go into a little bit more detail on the state of the consumer in your two most important markets, the U.S. and China, how consumer demand developed through the quarter and into January? And when you talk about China, if you could also touch upon travel retail and maybe what SK-II was on a Greater China basis, including travel retail as well. Thank you.

I'll start. Good morning, Robert. Look, the U.S. continues to perform very solidly, continues to impress with, I think, a very smooth transition from pricing, annualizing and overall consumption coming up in terms of volume, which is enabling us to post the volume improvements Jon was quoting over the past few quarters, and still accelerating ahead of the market with 4% volume growth and 50 basis points of market share growth. We continue to see trade up within our propositions. So as consumers come in, maybe at a lower tier and a lower value proposition, they are still trading up in the U.S., which speaks to the health of the proposition but also the health of the consumer and their willingness to invest. The last data point I’ll give you on the U.S. is we are able to grow as private label shares are slightly up, but we are up in the same range. Some consumers look for value in private label, but an equal, if not higher, amount of consumers find better value in our propositions as we drive continued superiority via innovation. So, I feel very strongly about the U.S., and we will continue to invest to drive more market growth there; the consumer is resilient and the business is doing well. On China, I'll begin. I'm sure Jon has incremental perspective, but the China opportunity remains intact. If you look at the underlying market size, potential development of the middle class, and our ability to drive category penetration in our categories, all of those are huge opportunities for us, which necessitate our continued investment and commitment to the Chinese market. We have a very capable organization, and we continue to be very optimistic that we can create value. Honestly, when the market requires growth to be driven by manufacturers, I think that positions us very well with our retail partners in China to have a competitive advantage and execute the model we know how to execute in many parts of the world. In the short term, as mentioned in the script, consumer sentiment is not fully recovered yet, and that is reflected in the results. If you want to take a silver lining, we see the attractiveness of key opinion leaders and heavy discounting in key consumption periods decreasing, which is a good trend for us. We believe a focus on brand equity and strong everyday value will help us grow the market back to mid-single digits and strengthen our position in the market. The last point on SK-II, no specifics. The numbers we’re quoting, obviously on the quarter, include domestic travel retail channel. Nothing else to add there other than we remain confident that as the sentiment improves, which we see already, along with continued investment in SK-II, we expect that business to recover over the back half.

Robert, as Andre suggested, I'll just provide a little bit of additional color on China. Having spent a fair amount of my career involved in that market and having just spent almost a full week there, I digested the Q2 numbers for P&G in China, and a couple things are worth keeping in mind. One is SK-II, which, just for clarity for everybody, is really driven by an anti-Japanese brand sentiment that Andre described. Our opening remarks in this call relate to the release of wastewater from the Fukushima nuclear facility, and we’ve had not identical but similar consumer sentiment dynamics in the past as it relates to this brand and the relationship between those two countries. It has always resolved itself, with SK-II moving to higher heights. The second thing that Andre referred to is important to understand as well. The heaviest purchase period historically in China was in November, which raised some concerns for us because a disproportionate amount of product moved during Double Eleven. It filled consumer pantries, some retailer inventories, and it often moved at heavily discounted prices. This year, the movement during that period was much lower. As Andre mentioned, we view that as a good sign. It's a very temporary impact you'll see in the quarterly indices, but it places us into a healthier position moving forward. If you think about the medium to longer term, as Andre mentioned, we anticipate an addition of 200 million middle-income consumers to China's population, which is very encouraging. Also, I mentioned that I was in homes, I was in stores, I was with our retail partners. They remain encouraged about the future of China. During my discussion with our organization at the end of the trip, I shared that I had never seen as much alignment in the market between our intentions and strategy, our retailers' intentions and strategies, and the government's intentions and strategies, all focused on what is being referred to as quality market growth. Following the last few points, I agree with Andre's perspective and I believe that the growth potential here remains intact. There are some specific items exacerbating the trends you're seeing this quarter, but I anticipate that this market will continue to be a source of growth and value creation for P&G. Sorry for the lengthy answer, but I think it's important.

The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Thanks, and good morning. At the risk of provoking another long answer, I guess what struck me this morning is just the confidence and assertiveness in both of your comments. Jon, your strategic perspective struck me as particularly assertive. I say that in the context that, from the outside, there are concerns growing that P&G is likely to be pushed off course or maybe getting complacent. I guess my question is, why is that wrong? And what to you are the keys to keeping the organization focused, grounded, and executing on all those strategic pillars that you detailed earlier?

Thanks, Steve. I want to step back first. We do face a lot of challenges in the world that we live in, and those have impacted our business. But if we take a moment to look back over the last five years, the level of challenge has always existed, whether it was COVID, the highest consumer inflation in 40 years, or the profit decline caused by commodities, foreign exchange, and transportation costs. Our organization has overcome all of that, including the challenges we faced this past quarter, and that gives me a huge amount of confidence in our ability, skills, strategy, and agility to continue to meet challenges head-on and do so constructively for consumers, customers, employees, society, and shareholders. Internally, we talk a lot about complacency and its downsides. It's front and center in our thought process. I have a couple of sayings I share with the organization, one being that complacency kills. You don't see a complacent organization when you’re looking at the breadth of growth that they're delivering. The continued after a decade of productivity yielding the kind of margin progress we saw this quarter tells that there's no sign of complacency as we reinvest in growing markets and increasing household penetration and share. We're not immune to complacency, so you're right to raise that concern. But I feel, as you mentioned, that the organization, not just myself, are very much on their front foot as they work to capitalize on the opportunities ahead of us. I've frankly never seen a greater number of opportunities. Now, there's a lot of work associated with capitalizing on those opportunities, and there will be challenges and forces working against us in that pursuit. But the successes of the midterm past, the most recent past, and the reflection of the work our organization is doing clearly demonstrate in the income statement and in innovation progress also contributes positively.

The next question comes from Filippo Falorni of Citi. Please go ahead.

Hi, good morning, everyone. Jon, I wanted to go back to China. You mentioned clearly that there was an impact from the cycling of the Eleven-Eleven shipments. Can you give us some sense of how much down was China and SK-II during that period? And maybe share some of the trends coming out of December that give you confidence in the improvement in the country in the second half? Thank you.

I apologize, I don't calculate at that data aggregation level, so I can't give a precise answer. However, I do know the impact was felt and it is a positive sign for us in the long term. I’ll just leave it at that.

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Hi, good morning. The U.S. volume growth improvement is very constructive. It's quite a bit better than what we can see in the U.S. Nielsen data, for example. I know the data is far from perfect, but I wonder if you could just help characterize whether you have any non-track channel boosts or in general talk about what has really driven this volume improvement over the past five quarters. Additionally, connected to that, if you could, there’s a lot of debate right now across consumer staples about what drives volume improvement, whether that’s promotional activity, increased advertising, or simply the lapping of pricing. I find it interesting to see this dynamic of sequential volume growth and wonder if you could share your insights about what is propelling this, whether it’s inherent in the market’s natural evolution post-substantial pricing. So, thanks for that.

Yes. Hi Chris, let me start. On the non-covered channel side, we've seen non-covered outpace covered channels for a period of time. This is not different. There is nothing specific happening in this regard. We see a trend of some consumers going into larger pack sizes. Those are in clubs, in online sales, and many of those effects continue. But there is do nothing different between covered and non-covered channels. Both are performing well, with non-covered slightly ahead. So that's why you're not seeing the results in the tracked data. As for what’s driving the growth, I’d argue it’s all that you’ve mentioned. I think we’re seeing pricing lapping; consumers are normalizing prices on the shelf now. We don't see an increase in the promotion depth or frequency, quite frankly. We're still operating at about 85% of pre-COVID levels from a volume sold on deal perspective. Competition is in a similar range, hence an escalation of promotion is absent. What drives it is strong innovation focused on market growth, and strong communication of that innovation in a very targeted way, leveraging our capability to be detailed and intentional about who we talk to at what time with what messaging. The U.S. is likely our most sophisticated market here, and this shows in the ROIs and results—again, back to Lauren's earlier question. A few relevant examples: the Gillette business, for instance, focuses on innovation on the core with the Labs razor, which serves as a strong growth driver. Additionally, we are adding new jobs to be done, like female facial hair removal or male and female body hair removal, which drives incremental consumption. I’ve also mentioned Oral-B, where penetration on the electric toothbrush remains low. As we convert more users and introduce lower-priced options, that drives overall growth along with innovative products. Lastly, Olay Super Serum has become the most successful new serum in the category, capturing 30% of new users. Thus, communication, strong innovation, premium propositions, and introducing new consumers into the category drives the accelerated volume growth.

I will pile on that. I agree with everything Andre said. So just to mention a couple of additional examples to show you the breadth of the innovation being commercialized currently. He touched on Olay, but we also see exciting innovation in our hair care business. For example, Head & Shoulders BARE, which is a more efficacious anti-dandruff offering with the bare minimum of nine ingredients, in eco-friendly packaging, is one of the drivers of growth, particularly in North America, where the Head & Shoulders brand is up 8% year-to-date. Another example in a different category, our Swiffer PowerMop is driving that business up 11% year-to-date and has been building both volume and value share at about 1.5 points. This reinforces what we've been focusing on and addresses Steve's question about complacency—this is our path forward. These efforts drive markets, volume, sales, and profitability.

The next question comes from Andrea Teixeira of JPMorgan. Please go ahead.

Thank you. Good morning. I wanted to go back to that 4% volume growth commentary in the U.S. and 3% in the EU focus markets. Despite the tough comparison for the cold and flu season, it seems that you had market share gains in laundry and some other key categories. Can you comment on how you exited the quarter, in relation to the cold and flu season, in the U.S. and in Europe? Additionally, it seems that you’ve secured more distribution throughout the balance of this fiscal year. Any comment on that? Lastly, regarding China, you mentioned confidence that growth would resume to mid-single-digit levels, and I assume this is not a comment for this fiscal year. As you commented, Jon, in terms of Hair Care and given that it’s a big category there, you’re mitigating against easy comps in hair. Can you elaborate beyond SK-II specifically? Thank you.

Let me address China quickly and then turn it over to Andre. On the cough cold trend, the mid-single-digit expectation I referred to is a long-term market growth estimate. You are correct; it is not anticipation for this current fiscal year. Looking at the wider beauty question—when you account for SK-II and market dynamics in China, we’re actually seeing a business performing extraordinarily well. Head & Shoulders, which is the largest shampoo brand in the world, is up 8% year-to-date. In North America, Pantene is up 15% year-to-date. Our skin and personal care business is also seeing double-digit growth, as is the beauty business in Enterprise LATAM and Europe. This underlines that the business can perform well under the same strategies, albeit applied differently across various product lines, which will ultimately demonstrate in China over time as the market stabilizes.

On the other two questions regarding personal health care in general, Andrea, the business is obviously very strong with an average growth rate of 13% for the past year. The underlying strength of the business remains very healthy. We note an impact from the cold and flu season, which is still above average but below the record season last year. It is developing slightly slower in the current profile, which suggests there may be some upside as time goes by. Last year, Vicks was at 28% in the same quarter, showing the high base we mentioned earlier.

Just one point on that—apologies for the interruption, Andre. As we were emerging from COVID and enduring our first non-COVID cough cold season, it’s unsurprising for our immunity levels to be lower, resulting in heightened incidence. Thus, we’re annualizing against this while also facing a slower-than-expected start i.e. the typical cold and flu season’s dynamics. We have seen some uptick in incidence, as you might hear in my own voice, which may not be as clear today.

Additionally, on distribution, we’re obviously focused on driving innovation, incremental sales for our retail partners, and driving category growth. This will naturally enhance our presence on their shelves.

The next question comes from Peter Grom of UBS. Please go ahead.

Thanks, operator, and good morning, everyone. While I know you maintained your commodity outlook this morning, just given the first half performance, the outlook currently does not embed as much of a tailwind moving forward, which you alluded to, Andre. Can you unpack what you're seeing across your key cost buckets? Where are things getting better? Where are things getting worse? And maybe based on current spot rates, how should we think about the phasing? Will you expect deflation in both Q3 and Q4, or is there any potential for costs to become headwinds as we exit the year? Thanks.

Hi, Peter. The commodity basket is wide, complex, and changing quickly. The best guess we have is what we told you, $800 million of tailwind for the year, which has largely been reflected in the P&L in the first half. I'll leave you with this: I don't expect any headwind from commodity costs in the second half. They will continue to provide a tailwind. The second point I’ll mention is the impact on the P&L given the time it takes for commodity changes to flow through our contract structures and our own variance holding policy—both create significant time lags. Therefore, even if we see considerable volatility in commodity spot prices, the overall fiscal impact will decrease over time as those two dynamics play out. Nevertheless, continue to expect tailwinds, but at lower levels than in the first half.

The next question comes from Jason English of Goldman Sachs. Please go ahead.

Hi, good morning, folks. Thanks for having me here. And yes, belated Happy New Year to you all. A couple of questions: We’ve talked multiple times about the North America volume strength, and I had in my notes that you're lapping some under-shipments that should have benefitted this quarter, but I don't think you've mentioned it so far. So, my first question is, am I wrong, was there not a sizable benefit this quarter? Secondly, it's encouraging to hear the confidence you express around what sounds like an imminent improvement in SK-II, with remarks about recovery and improvement throughout the back half. For the decline related to Japanese boycotts and market conditions together, where are you observing the improvements? Is it dissipating concerns around Japanese brands, or are you actually seeing an uptick in market conditions? Thank you.

On the volume side, Jason, good morning—there's nothing transient that I would call out; neither did we see material impacts regarding the U.S. volume results which would need to be adjusted for. The SK-II improvement, again, I want to temper expectations, however, we are observing increasing consumer sentiment. At one point, we had high social media coverage leading to negative sentiment, however, that is now dying down. Most consumers have reverted to a neutral position, largely open to SK-II. Thus, we are doubling down on innovation, communications around the product efficacy, and leveraging our most loyal and engaged consumer group to help reinforce the case for SK-II, which we believe will help improve run rates in the second half. Market dynamics, I expect will remain volatile over the next quarters.

It's essentially an end-of-one scenario, Jason, so it holds little relevance. However, I spent time in the home of a heavy SK-II user in Beijing, and I asked her about this dynamic and how it affected her purchasing. She laughed, and it wasn’t a typical nervous laugh. She followed, expressing that if Japanese consumers aren't afraid of this, neither should I be. She mentioned that her concern lies more with the blemish she'd have if she didn't use the product than any sentiment around these narratives. This demonstrates a normalization process is underway, that's my perspective. Another point worth mentioning was the observation I got about her personal inventory—the liquid fill levels in the bottles were noticeably low. I sense a number of customers just waited to observe how this would all unfold and have reduced their personal stocks throughout that process. But again, those are merely anecdotes. I thought it was worth sharing.

The next question comes from Callum Elliott of Bernstein. Please go ahead.

Hi, good morning. My question guys is about your end-market restructuring. I think in the release you described it as substantial liquidations in markets such as Argentina and Nigeria. While I recognize these markets aren't substantial for you at the moment, from a profit perspective, it seems like a fairly extreme decision during a challenging macro backdrop today. But in the case of Nigeria, it’s considered one of the highest potential economic markets long-term. So, Jon, I know these enterprise markets have been your project for several years. I just hope you can walk us through what I imagine must have been a difficult strategic decision.

Yes, these decisions are not made lightly. A couple of points: one is where we are transitioning to an import model, which will be the case in Nigeria. We maintain an option for the future of these brands in these markets. We are simply choosing to operate in a viable manner. You run into tough situations in some of these markets with currency controls, pricing controls, and the ability to repatriate dividends from these markets. At a certain point, the restrictions produce conditions that make it impossible to operate. You can't source dollars, for example, to purchase the ingredients and raw materials necessary for production. Therefore, when situations present themselves, we find it pragmatic to pursue value-creation while diverting resources to bigger opportunities with near-term benefits, while in some cases, maintaining our optionality on the long-term. Andre, do you want to add anything?

Yes, I want to clarify that the strategic intent is precisely what Jon described. In Nigeria, we're transitioning to an import market while still maintaining our presence; it's a better way to serve consumers and create value. In Argentina, we're divesting our fabric and home care business while searching for a more effective go-to-market model. The term 'substantial liquidation' you referenced is technically an accounting term that defines the moment we recognize the accumulated foreign exchange translation loss in those markets, which falls within the noncash restructuring discussions we talked about. So essentially, this accounting language does not fully represent business execution—it’s simply a technical term indicating the recognition of accumulated foreign exchange translation loss.

The next question comes from Olivia Tong of Raymond James. Please go ahead.

Great, thanks. Good morning. Clearly, you've generated some impressive growth in the U.S. and Europe, so I want to bring it back to the developed markets. You've maintained your position in terms of pricing. I wanted to ask about competitive responses and whether you've seen any pushback from retailers or increased promotions from the competition, given the share gains you've made, and whether you're seeing any response there?

You want to handle competitive promotion, Andre, and then I'll address the retail side?

Happy to. Hi, Olivia. I started to mention this earlier. In the U.S., our level of promotion remains below pre-COVID at about an 85 index and competitive promotions at around a 90 index. So, nothing substantial has shifted in this space; however, we have observed an increase in the frequency of promotions in Europe, albeit both frequency and depth have yet to return to pre-COVID levels, with frequency on the rise. The competitive environment appears stable and reflects the growth that P&G is driving, which in turn positively influences our share gain without generating negative cycles in pricing within the market.

To extend Andre's last point, our focus is to create business—not just take business away from others. That’s beneficial for us, for the categories we participate in, and for our retail partners. That describes the state of interactions with our retail partners as well. Number one, supply assurance, as we’ve solidified our supply chains, and the conversation moves swiftly toward collaboration to grow markets. It’s a cooperative endeavor that serves as a win-win-win opportunity—for retailers, for us, and equally for consumers—with a fourth win for our shareholders clearly on the radar as well. This has been my experience across Europe and China, as well as here in the U.S. during my travels.

The next question comes from Mark Astrachan of Stifel. Please go ahead.

Thanks, and good morning, everybody. I wanted to go back to China, as I recall the last quarter you spoke about a portfolio structure examination. I’m curious if there’s any update on that and what it even means. Additionally, are there any underlying changes in consumer attitudes toward beauty as a category including what’s seen as relevant by brand or its efficacy? Arguably, beauty becomes a more fickle, trend-driven category than many of your other markets. I’m specifically asking about China rather than globally, so that context would be helpful. Could you give me your thoughts on maintaining a presence in a category with subjective usage that diverges from your other categories with more daily relevance? Thank you.

I'd offer a couple thoughts there. One is that China is our second-largest market by sales and profits, and beauty represents a disproportionately significant portion of the business. Therefore, if we weren't committed to beauty in China, it would require a different conversation. In terms of portfolio restructuring, we've taken significant actions in the past, moving toward daily use categories in which performance drives brand choice, aligning our beauty segment similarly. We've exited more fickle brands, especially in fashion and fragrance types. What remains in our portfolio represents true opportunities for long-term loyalty and superior performance. This is the assessment for both China and globally. There will always be a higher trial rate in the beauty category, but that’s not disadvantageous; it highlights the superiority of our offerings, fostering repeat business.

Our final question will come from Edward Lewis of Redburn Atlantic. Please go ahead.

Yes, thanks very much. We've been accustomed to strong performance in the U.S. for a number of years, but it's notable to see the strong performance in Europe again, with both volume and price. I guess that comes at a time when you’ve spent scrutiny over here on pricing levels. Can you speak more to what’s driving the strong results for Europe at present?

The execution of strategy in Europe is truly driving the strength of results. The team has done an incredible job of incorporating necessary price increases to recover commodity costs while being complemented by strong innovation that resonates deeply with consumers amid price sensitivities. That’s behind the benign volume impact associated with our pricing adjustments and the acceleration in volume growth with pricing now established in the market. To give you a few examples, Jon mentioned Ariel; I noted Ariel as well. Ariel parts in more sustainable packaging launched with an essential price increase but has built organic sales by as much as 20% or higher. The results result from the convergence of strong innovation, appropriate pricing, and consistently maintaining consumers within our franchise and encouraging them to trade up, which mirrors the U.S. performance.

We endeavored for years to convince ourselves that what mattered most in Europe was pricing—specifically, the lower the price, the better. This wasn’t an uninformed conclusion, given high development rates of heavy discounters in Europe indicating that price plays an important role in consumers' value propositions. However, as Andre highlighted, we have shifted our focus over the last few years toward innovation being a core driver of value, without ignoring the importance of price, but instead delivering value through performance. This approach, accompanied by the incredible execution capability of our team in that market—whom I appreciate immensely—has fostered strong, sustainable results over time. Thank you for your time this morning. While this quarter presented its challenges, the net outcome remains very positive, with strong earnings per share growth alongside increased investments aimed at maintaining top-line momentum while also building volume and share. I’m confident in our ability to achieve success moving forward, which stems from both our strategy and our organization’s capacity to deliver; I look forward to many of you attending CAGNY in a month or so as we advance this discussion further. I'm around, John Chevalier is here with me today; feel free to reach out to them. Have a great day.

That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.