Is P&G Now a Bond Proxy in Disguise?

About the company

Procter & Gamble is a leading consumer goods company specializing in daily-use products. Its business is organized into five segments covering ten categories: Beauty (Skin & Hair Care), Grooming (Gillette razors), Health Care (Oral and Personal Care), Fabric & Home Care (laundry and surface cleaners), and Baby/Feminine/Family Care (diapers, feminine hygiene, and tissue). Fabric & Home Care is the largest division (~36% of sales) with brands like Tide, Ariel, and Dawn. Baby/feminine/family care accounts for ~24% (Pampers, Always, Charmin). Many P&G brands are global market leaders with a strong share (often >25%) in their categories. Approximately 48% of sales are in the U.S. and 52% international.

P&G's Q2 FY2025 Earnings Analysis

In Q3 FY2025, P&G reported net sales of $19.8 billion, down 2% from a year earlier. On an organic basis (excluding currency fluctuations and acquisitions/divestitures), sales increased by 1% year-over-year. Reported net earnings were $3.8 billion (implying roughly a 19.2% net profit margin), and GAAP diluted EPS was $1.54, up 1% from $1.52 a year ago. These results were roughly in line with analysts' expectations; consensus forecasts were for approximately $1.55 EPS on sales of around $20.36 billion. As a result, EPS essentially met the $1.55 consensus, while revenue came in about $580 million below estimates. After the release, P&G's stock fell ~4.5% pre-market on the modest revenue shortfall, but markets appeared to accept that EPS was essentially on-target.

Despite the flat sales, P&G's operating efficiency improved. Core (non-GAAP) gross margin eased only slightly (~30 basis points lower than a year ago), and core operating margin actually expanded by about 90 basis points. This reflects productivity gains and cost controls that offset commodity cost pressures. For example, management cites ~$280 million of productivity savings in the quarter. As a result, operating cash flow was $3.7 billion, virtually matching net income, and free cash flow was very strong (adjusted cash-flow productivity ~75%). The company returned $3.8 billion of cash to shareholders in the quarter via dividends of $2.4 bn and buybacks of $1.4 bn, consistent with its long-term policy (notably, FY2025 guidance contemplates about $10 bn in dividends and $6-7 bn in buybacks).

Year-over-year, the slight sales decline reflected mixed category performance. P&G's Beauty and Grooming segments saw modest gains, but Baby/Feminine/Family Care (which includes Pampers) had a low-single-digit organic decline due to volume weakness. The company notes that much of the top-line change was driven by pricing (+2% price impact), while volumes/mix were roughly neutral. The bottom line benefited from offsetting factors: cost discipline and pricing action supported earnings, but headwinds (notably currency and increased marketing spend in some segments) kept margin gains limited.

Growth Strategy and Market Share

Management attributes its long-term growth to irresistible superiority (innovation, packaging, advertising, and execution) and productivity. They frequently point to market-share gains as proof of strategy. In FY2024 and early FY2025, P&G reported that ~6070% of its major markets either held or gained share. For instance, the FY2024 report boasted that global aggregate value share was up year-over-year, and 30 of 50 key brand/market combinations held or grew share. In Q1 FY2025, P&G similarly noted 28 of 50 key combos were flat or up. While this is encouraging, sustaining share gains in mature categories is challenging: competitors (e.g,. Unilever in personal care, Kimberly-Clark in diapers) are investing aggressively too. P&G's stated tactics include aggressive R&D and product launches, targeted marketing spend, and pricing optimization. Indeed, P&G remains one of the world's largest advertisers; for context, it spent ~$11.5 billion on marketing in FY2021 (earning the title of top global advertiser). Management specifically says it is maintaining investments in superior innovation across price tiers to improve value and drive category growth. Recent examples include GilletteLabs razors (exfoliating strip), Always FlexFoam pads (higher price point), Head & Shoulders BARE shampoo (eco?packaging), and Oral-B iO toothbrushes (premium brush heads). These products have outperformed their categories, suggesting advertising and superior product + pack strategies are working.

Pricing is another key lever: P&G has repeatedly raised prices to offset cost inflation. As of April 2023, it had implemented ~10% price increases versus the prior year. These hikes supported a moderate sales increase despite weak volumes. The Harding Loevner analysis noted that even with 10% higher prices in Q1 2023, unit sales fell only 3% (with a 1-point hit from the Russia withdrawal). In the U.S., P&G saw volumes hold flat or even rise post-price-increase, indicating resilient brand loyalty. In Europe, however, P&G acknowledged some share loss as consumers traded down to cheaper private labels. In Q3 FY2025, 100% of P&G's 1% organic growth came from pricing, with no net volume gain. Looking ahead, management forecasts continued modest price increases but emphasizes innovation to sustain growth. To truly validate the market-share-gain thesis, P&G will need sustained volume improvements; so far results have been mixed (some growth in grooming and health, weakness in baby care).

Restructuring Plan in Focus

In April 2025, P&G announced a two-year restructuring program beginning in FY2026 that will involve cutting approximately 7,000 jobs, about 6% of its global workforce, and exiting select lower-growth brands and geographic markets. The company expects to record pre-tax charges between $1.0 and $1.6 billion over the life of the plan. While management has not disclosed precise annual savings targets, analysts estimate the program could ultimately free up $800 million to $1 billion in annual operating profit, equivalent to a 100120 basis point margin improvement if fully realized.

The restructuring is designed to build upon the existing Productivity and Cost Savings Program that has already generated more than $800 million in annual efficiencies through FY2024, largely through supply-chain optimization, procurement consolidation, and automation in manufacturing. Unlike that ongoing initiative, the new program is more sweeping: it not only reduces headcount but also reshapes the portfolio by shedding brands and markets where P&G lacks scale. For example, analysts expect underperforming regional brands in fabric care and family care to be divested or wound down, allowing resources to be redirected into global powerhouses like Tide, Pampers, Gillette, and Oral-B.

The risk, of course, is that aggressive cost-cutting can undermine brand equity if it starves advertising or innovation. P&G spends more than $8 billion annually on advertising, which is the highest in its sector, and investors will be watching closely to ensure this budget is not compromised. Management insists that the restructuring will reallocate, not reduce growth investment, arguing that savings from overhead and non-core exits will be recycled into higher ROI categories. If executed well, the restructuring could act as a meaningful catalyst: streamlining operations, protecting margins against inflation and tariffs, and providing fuel for continued dividend and buyback commitments. If execution falters, however, it risks being perceived as another round of business as usual cost control that fails to change the long-term growth trajectory.

Investor Activity and Shareholder Base

Based on GuruFocus.com data for the past three months, institutional investor activity in Procter & Gamble has been relatively mixed, with modest net selling pressure from high-profile gurus. Notably, several long-term value managers, including Tom Gayner (Trades, Portfolio)'s Markel Asset Management, trimmed their positions, citing limited near-term upside given the company's premium valuation versus historical averages. Conversely, some defensive-oriented funds, such as PRIMECAP Management (Trades, Portfolio), modestly increased their holdings, positioning P\&G as a stable, dividend-paying anchor amid broader market volatility. Overall, the pattern suggests that while growth-oriented investors have been cautious due to muted volume expansion and rich multiples, income-focused and defensive managers continue to see the stock as a reliable core holding.

Revenue, Volume, and Margin Trends

Over the past 510 years, P&G's top line has grown only modestly. Annual revenues were roughly $6575 billion through the 2010s, peaking near $84 billion in FY2024. This rise was due mostly to price increases and emerging-market expansion; unit volumes have been flat or down. For example, revenue grew 2.3% in 2023 and 2.5% in 2024, far below global inflation rates (which averaged 46% over that span). In effect, underlying volumes have been stagnant or declining. This is consistent with management's view: Q3 FY2025 saw 0% volume growth, and full-year FY2025 guidance calls for only ~2% organic sales growth vs. 2024, implying again that volume growth will be minimal.

Despite flat revenue, P&G has boosted margins through cost cuts. Productivity savings have been substantial. For instance, in FY2024 gross profit jumped ~10% YoY (from $39.25B to $43.19B) while net sales rose only ~2.5%. That implies gross margins expanded roughly 400 basis points in that year. Much of this came from raw-material and logistical cost reductions, supply-chain improvements, and SKU rationalization. In Q3 FY2025, reported gross margin dipped a bit (-20 bps reported, -30 bps core) as higher commodity costs and unfavorable mix offset productivity, but operating margin still expanded due to tight SG&A control (+100 bps). Overall, P&G's margin discipline has partially offset the lack of sales growth: its 2024 gross margin was ~51%, up from ~47% in 2022. Going forward, modest net sales growth (24%) is projected, with earnings growth driven by these productivity gains and share buybacks. However, should inflation accelerate, P&G may again rely on price hikes, risking further volume losses (as hinted in late 2024/25 guidance).

Valuation and Peer Comparison

P&G today occupies a unique position in investor portfolios. On one hand, it is the quintessential defensive stock: a $360 billion consumer giant with iconic brands, robust free cash flow, and a dividend yield of around 2.5% that has been raised for 68 consecutive years. Its Q3 FY2025 results showed exactly what investors have come to expect: low single-digit organic growth, solid margin discipline, and generous shareholder returns, even if revenue fell short of consensus. On the other hand, the company faces a structural challenge: volumes have been flat for the better part of a decade, revenue growth has trailed inflation, and management's promise of market-share-driven growth is yet to translate into a sustained acceleration.

That leaves investors with a sharper framing: is P&G's equity becoming a bond proxy, or does it still offer equity-like upside? If seen as a bond proxy, the stock is fairly valued: trading at ~22 forward earnings, in line with its five-year average, and offering a predictable yield. But if P&G can execute its restructuring plan, sustain gross margin gains, and reignite volume growth in core categories such as diapers, grooming, and oral care, then the stock could justify multiple expansion relative to peers like Unilever and Colgate. For now, we lean toward the bond-proxy interpretation: P&G remains a core holding for income-focused, long-term investors, but it is not priced as a growth story. The real test over the next two years will be whether management's restructuring proves to be a catalyst for renewed organic momentum or whether investors should view P&G equity as simply a safe-yielding alternative to its bonds or even to Treasuries.