P&G warns of $1 billion profit hit in fiscal 2027 from higher oil prices

Highlights

• Annual EPS to be at the lower end of range on higher input costs
• Hair care, beauty lead volume growth in third quarter
• Shares up 3.6% after Q3 results beat expectations

US consumer goods giant Procter & Gamble on Friday warned of a roughly $1 billion post-tax hit to its fiscal 2027 profit from surging oil prices, joining a host of global companies flagging significant cost pressures from the Iran war.

The Pampers and Tide maker's estimated profit hit is among the highest outside of airlines, which rely heavily on oil for fuel.

European rival Nestle has warned of higher costs due to the Strait of Hormuz blockade, while Nivea-maker Beiersdorf is considering price hikes later this year if commodity costs continue to rise.

"The noise, I would call it, from the commodity exposure is significant, as a billion dollars after tax is nothing to sneeze at from a headwind standpoint," said P&G finance chief Andre Schulten on a post-earnings call.

"We have a lot of work to do, to work through the supply chain side and the cost side."

The profit hit to P&G's fiscal year beginning July accounts for the impact of oil price jumping from $60 a barrel before the conflict to around $100 today on plastics and paper for packaging, as well as transportation charges, the company said.

P&G said it was well placed to manage the challenges, including some force majeure declarations by direct suppliers that were no longer able to carry out deliveries.

Commodity cost pressure

P&G, whose total cost of goods sold in 2025 was $40.85 billion, also flagged a $150 million impact for the fourth quarter due to commodity-linked cost inflation, feedstock exposure and logistics disruption from the Middle East conflict.

A Reuters review of statements from 172 companies since the start of the Iran war showed 24 of them have either withdrawn or cut their outlook, while 35 have signalled price hikes and another 35 have warned of a financial hit from the conflict.

"Inflation across food, energy, healthcare, and many other areas of spending has taken a toll on consumers and how they assess value. Recent geopolitical events have elevated this to a new level of concern," Schulten said.

Steep fuel charges are also weighing on an already stressed lower-income US consumer.

P&G expects fiscal 2026 earnings per share to be at the lower end of its target range of flat to 4% up.

"Investors are very aware of the commodity cost pressures companies like P&G face. Oil is ubiquitous and high oil prices seep into everything," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.

"The CFO is realistic about these problems and investors seem to be pleased with how the company is managing through the situation."

Shares of P&G, which topped third-quarter estimates, were up about 3.6%.

Product investments pay off

Volumes rose in three of P&G's five reported segments in the third quarter, helped by new launches of products such as Pantene shampoo and Olay skin cream at higher prices in North America and Europe.

"We're increasing investments to accelerate momentum with consumers despite the challenging geopolitical and economic environment," said Shailesh Jejurikar, who took over as P&G's CEO at the start of the year.

However, P&G's currency-neutral gross margin fell 100 basis points, sliding for the sixth straight quarter, partly due to tariffs and its ongoing investment in product innovation.

"The bigger concern is that much of that revenue growth was from price increases on those popular brands... they cannot continue to raise prices at this pace indefinitely," said Brian Mulberry, chief marketing strategist at Zacks Investment Management.

P&G's quarterly sales rose 7% from a year ago to $21.24 billion, topping estimates of $20.50 billion, while adjusted earnings per share of $1.59 beat expectations by three cents, according to data compiled by LSEG.

Tariff refund

P&G maintained its expectation of a nearly $400 million hit from tariffs on fiscal 2026 profit. About half of that was from the tariffs imposed under the International Emergency Economic Powers Act, which were invalidated by the US Supreme Court in February.

The company is planning to follow the process of applying for refunds, which was launched earlier this week.

"We have about $150 million after tax in refunds available from the IEPA tariff. How much of that is recoverable or not? We'll find out," CFO Schulten said.