P&G's Q1 2026 10-Q: The Story Behind a 20% Earnings Jump

Consumer goods giant Procter & Gamble (PG), the company behind household staples like Tide, Pampers, and Gillette, recently released its financial results for the first quarter of fiscal year 2026. For anyone looking to understand the health of this bellwether of the consumer economy, the company's latest 10-Q filing offers a detailed look under the hood. Let's break down the key takeaways from its income statement.

For the three months ended September 30, 2025, P&G reported net sales of $22.4 billion, a 3% increase from the $21.7 billion recorded in the same period last year. More impressively, net earnings attributable to the company jumped 20% to $4.75 billion, translating to diluted earnings per share (EPS) of $1.95, up from $1.61 a year ago.

To see how P&G converts its massive sales into profit, the following flow diagram visualizes the company's quarterly income statement.

In the chart, the "Unallocated" of $242 million and the associated cost of revenue represent activities not allocated to the five main business segments.

The Story Behind the Profit Surge

A 3% rise in sales leading to a 20% jump in net earnings is certainly noteworthy. So, what's driving this impressive bottom-line growth? A closer look reveals the story isn't just about selling more products.

The primary driver was a significant swing in non-operating items. In the same quarter last year, P&G recorded a net non-operating expense of $554 million, largely due to a loss on asset sales. This year, that same line item was a net non-operating income of $268 million. This dramatic year-over-year reversal accounts for a substantial portion of the earnings growth, highlighting that the big profit jump was more about the absence of a large one-time loss last year than a massive surge in operational profitability this year.

In fact, the company's operating income—the profit from its core business operations—grew by a much more modest 1%, from $5.80 billion to $5.86 billion. Furthermore, gross margin (the percentage of revenue left after accounting for the cost of goods sold) actually decreased slightly by 0.7 percentage points to 51.4%, pressured by an unfavorable product mix and higher packaging and tariff costs, which were not fully offset by price increases and manufacturing savings.

A Mix of Fortunes Across Segments

P&G's five major business segments, which contribute over $22 billion in quarterly revenue, showed varied performance:

• Beauty (19% of sales): This segment, featuring brands like Pantene and Olay, was the standout performer with a 6% increase in net sales to $4.1 billion. Net earnings for the segment also grew by a healthy 5%.
• Grooming (8% of sales): Home to Gillette and Braun, this division posted a strong 5% sales growth, reaching $1.8 billion. It demonstrated excellent cost control, with net earnings climbing 9%.
• Fabric & Home Care (35% of sales): The company's largest segment, which includes powerhouses like Tide and Dawn, saw sales inch up just 1% to $7.8 billion. However, its net earnings fell by 3%, reflecting the margin pressures seen across the company.
• Baby, Feminine & Family Care (23% of sales): This segment, with brands like Pampers and Always, also grew sales by 1% to $5.2 billion, but managed to increase its net earnings by 4%.
• Health Care (15% of sales): Driven by Crest and Vicks, this segment grew sales by 2% to $3.2 billion, but saw net earnings decline by 3%.

Returning Value to Shareholders

A consistent theme for P&G is its commitment to returning cash to shareholders. During the quarter, the company continued this tradition, paying out $2.5 billion in dividends and buying back $1.25 billion of its own stock. This combined total of nearly $3.8 billion underscores the company's immense cash-generating capability.

In conclusion, Procter & Gamble's first-quarter results present a picture of steady, albeit modest, operational growth. While the headline 20% earnings increase is eye-catching, it was significantly influenced by a favorable comparison to the prior year. The underlying business is navigating a complex environment with some margin headwinds, but segments like Beauty and Grooming show solid momentum. For investors, P&G remains a disciplined operator focused on productivity and shareholder returns, a strategy that continues to anchor its financial performance.