P&G's China Baby Care Premium Push Succeeds as Broader Segment Struggles

What happened

Procter & Gamble is seeing sales growth in China's baby care market by shifting to premium products, despite falling birth rates, according to a recent article. DeepValue's report, however, shows that the overall Baby, Feminine & Family Care segment experienced a 2% organic sales decline in the first half of fiscal 2026, indicating ongoing volume pressure. This China success contrasts with broader challenges, including consumer trade-down in U.S. markets, tariff impacts, and negative volumes in key categories like fabric care. The investment thesis maintains a WAIT rating due to high valuation multiples of around 22x EPS and uncertainty around volume stabilization. While the China strategy is effective locally, it does not offset the fundamental risks of slowing organic growth and cash flow constraints highlighted in the report.

Implication

P&G's ability to grow premium sales in China's baby care market demonstrates innovation potential, which could support margin expansion if replicated in other regions. However, with organic growth slowing to 1% in recent periods and volumes negative in core segments, the overall growth trajectory remains weak, aligning with DeepValue's base case of 1-2% organic sales growth. The premium strategy in China does not address persistent issues like consumer trade-down, tariff costs, and free cash flow productivity below targets, which are key risks in the bear scenario. Investors should monitor whether this success leads to sustained volume gains or remains isolated, as the wait rating is driven by the need for proof of stabilization before considering entry. Until there is clearer evidence of volume recovery and improved cash flow, the risk-reward profile favors waiting for a lower price near $130 or signs of operational turnaround as outlined in DeepValue's scenarios.

Thesis delta

The news of P&G's premium success in China does not shift the core investment thesis, which remains a WAIT due to high valuation, volume declines, and cash flow concerns. It highlights the company's capability in premium innovation, but this is already factored into the bull scenario and does not alter the probability-weighted base case of slow growth. Investors should view this as a positive data point that reinforces the need for broader volume stabilization before changing the stance.