P&G’s volume growth beats expectations: How far is profit from returning to normal?

First-quarter results beat expectations: What drove growth?

P&G reported core EPS of $2.00 for the first quarter of fiscal 2027, above the Visible Alpha consensus of $1.89. Organic sales rose 4.0% year over year, also exceeding the consensus of 2.2%.
Growth came mainly from volume growth of 2.4% and a 1.1% contribution from product mix; price increases contributed just 0.4%. Bernstein concludes that consumers are still willing to choose P&G when prices are right, and that growth can rely more on volume rather than continued large price increases.

Fabric and home care best illustrates the volume-growth thesis: first-quarter prices fell 0.3%, but volume grew 4.3%, driving organic sales growth of 4.8%, above the consensus of 2.75%. Over the past three months, fabric care sales share rose by approximately 0.7 percentage points in North America and 0.6 percentage points in Europe; product innovation also supported growth.
In baby, feminine and family care, first-quarter prices fell 1.2% and volume rose 2.3%. Pampers sales in China grew nearly 50%, of which about 3 percentage points came from disruption at a competitor. Bernstein expects volume growth in the business to slow as that boost fades.
Health care showed the opposite pattern: although organic sales grew 2.7%, volume fell 2.9%, weaker than the consensus forecast for growth of 0.45%, and growth depended on pricing and product mix. This means the improvement in group volume did not extend across all businesses.

The company maintained its fiscal 2027 guidance for organic sales growth of 1%–3% and core EPS growth of 0%–3%, corresponding to $6.89–$7.11. Bernstein expects organic growth to slow to 2.4% in the second quarter, partly reflecting the effect of stocking in Europe, and to be approximately 3.5% in the second half.
Operating leverage from volume growth and restructuring savings must first offset cost pressures. Bernstein highlights an approximately 11 percentage-point drag on EPS growth from inflation and interest rates. The company’s full-year guidance also includes an after-tax impact of $300 million from higher interest expense and $150 million from lower non-operating income.

Bernstein forecasts organic growth of 2.92% in fiscal 2028, a slight slowdown from fiscal 2027: pricing power remains limited in fabric and home care and in baby, feminine and family care. Profit improvement therefore depends mainly on easing inflation, continued restructuring and a better business mix rather than faster sales growth.
Further cost savings can come from manufacturing automation, shorter production-line changeover times and higher throughput at existing plants. Management says the company has a pipeline of restructuring and productivity projects looking roughly three years ahead, which has historically generated savings of approximately $1.5 billion–$1.7 billion; the formal restructuring program runs through the end of this fiscal year and involves eliminating up to 7,000 positions.
Assuming the operating improvements above and broadly stable company-level expenses year over year, Bernstein forecasts operating profit growth of 4.7% and EPS growth of 4.3% in fiscal 2028, only close to a return to a normal growth trajectory. The model continues to set restructuring charges in fiscal 2028 at the same level as in fiscal 2027.

Bernstein raised its price target from $149 to $171 and maintained its “Market-Perform” rating. The NTM+1 EPS used in the valuation rose from $7.07 to $7.27, while the price-to-earnings multiple rose from 21 times to 23.5 times. The increase came from both earnings forecasts and the valuation multiple.
The multiple corresponds to valuation parity with the consumer staples sector. The last time P&G’s earnings growth was on a normal trajectory was fiscal 2024, when it traded at an approximately 20% premium to the sector; however, its EPS growth rate that year was 2–3 times Bernstein’s fiscal 2028 forecast, so that premium has not been restored this time.