Financial Trends -- 6/10

Organic revenue re-accelerated sharply to +5.0% in Q1'26 after a sluggish FY25. Revenue grew from $4,896M (2020) to $6,203M (2025), a 4.8% 5-year CAGR. FY25 organic of +0.7% was the weakest in the window, dragged by retailer destocking, VMS weakness, and portfolio exits (~$400M of lower-margin brands divested). However, Q1'26 organic of +5.0% represents a clean inflection -- volume-driven, broad-based, and above the 3-4% evergreen target. Reported revenue continues to decelerate on FX headwinds and the mechanical drag from divestitures, but the underlying organic engine has restarted.

Adjusted gross margin hit a record 46.4% in Q1'26, +130bps YoY. Annual GM expanded from the 41.9% trough (2022) to 45.7% (2024) before pulling back to 44.7% in FY25 due to inflation, tariffs, and VMS promotional drag. Within FY25, the quarterly trajectory improved: 45.0% (Q1) to 43.0% (Q2) to 45.1% (Q3) to 45.8% (Q4). Q1'26 at 46.4% extends that recovery to a new all-time high, driven by productivity programs, portfolio cleanup (higher-margin go-forward mix), and moderating input costs. Management guided +100bps GM improvement for FY26 (above the evergreen 25-50bps algorithm).

FCF compounding steadily -- $875M (FY21) to $1,093M (FY25), +12% YoY. Free cash flow has grown at a ~6% CAGR over 5 years, with the FY25 figure representing a new record. FCF conversion (FCF/Net Income) remains excellent for consumer staples. The company has returned substantial capital to shareholders via dividends and buybacks, with the share count declining ~2-3% per year. Quarterly FCF margin has compressed sequentially (14.4% to 11.5% to 9.7%) -- worth monitoring but partially reflects timing of working capital flows.

EBITDA contracted -1.6% in FY25 but EPS still compounding; Q1'26 GM expansion should help. Adj EBITDA fell from $1,518M (2024) to $1,495M (2025) after +10.2% growth the prior year. Adj EPS of $3.53 is a fresh record but growth decelerated materially from +8.5% to +2.6%. Management guided 5-8% EPS growth for FY26 ($3.71-$3.81 implied). The record gross margin in Q1'26 (46.4%) should flow through to improved EBITDA in the coming quarters.

Q1'26 organic of +5.0% is the strongest quarter since Q4'23, confirming re-acceleration. Organic growth collapsed to -1.2% in Q1'25 (retailer destocking, ~300bps drag), bounced to +3.4% in Q3'25, then slipped to +0.7% in Q4'25 (VMS drag). Q1'26 at +5.0% is a clean beat -- volume-driven, above the evergreen target, and lapping the weakest comp quarter. The quarterly gross margin trajectory has been consistently improving since the Q2'25 trough (43.0%), hitting the all-time record 46.4% in Q1'26.

Consumer Domestic went negative in FY25 (-0.5%) but the Q1'26 inflection is broad-based. The core domestic segment decelerated from +5.7% (2023) to +3.5% (2024) to -0.5% (2025). This was the primary driver of the FY25 weakness. International decelerated from +9.0% to +5.5% but remains healthy. Specialty Products showed volatility, from -7.9% (2023) to +7.1% (2024) to +2.6% (2025). The Q1'26 organic re-acceleration to +5.0% suggests domestic has turned the corner, aided by innovation launches (TheraBreath toothpaste, ARM and HAMMER Deep Clean) and easier comps.

International is the most consistent grower; Domestic was volatile around zero in FY25. Consumer International maintained positive organic every quarter, ranging from +3.6% to +9.6%. Consumer Domestic turned negative in Q2'25 (-1.0%) and Q4'25 (-0.1%), though showed recovery in Q1'25 (+3.0%) and Q3'25 (+2.3%). Specialty Products showed sharp volatility, from +10.3% (Q4'24) to +0.1% (Q2'25). The Q1'26 consolidated organic of +5.0% suggests the domestic weakness has largely resolved.