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Operator

Ladies and gentlemen, thank you for your patience.
I have reconnected the speaker line, and we'll ask the speakers to continue. Andre?

Andre Schulten

Apologies for the technical issue here. We are picking up at the strategy comments. We're not exactly sure where we got disconnected, but we can follow up in the Q&A section, if there are any elements on the results that we need to pick up on.
On the strategy side, now is the time for investment in and flawless execution of our integrated growth strategy. Delivering superiority across every part of our portfolio is the path to growing categories, providing value to consumers and customers and creating value for shareowners. We must do this across all value tiers where we play all retail channels and all consumer segments we serve as we've done in the past.
We will continue to actively manage our portfolio across markets and brands to strengthen our ability to generate US dollar-based returns in daily use categories where performance drives brand choice. We will continue to accelerate productivity in all areas of our operations to fuel investments in so priority mitigate cost and currency headwinds and drive margin expansion, and we will continue our efforts to constructive disruption of ourselves and our industry changing, adapting and creating new ideas, technologies and capabilities that will extend our competitive advantage.
We are empowering our highly capable and agile organizations that are ready to step forward to create value for our consumers, customers and shareowners. These choices portfolio, superiority, productivity, constructive disruption and organization reinforce and build on each other, and we remain confident in our strategy and its importance, especially in difficult times to drive market growth and deliver balanced growth and value creation.
A long-term focus on the strength of our brands, business and categories is the best way to position ourselves for stronger growth when the economic climate and consumer confidence improves. This starts with strong innovation plans. We have many new innovations that launched in the fall or are hitting shelves now. We recently launched our best whitening toothpaste ever Crest 3D White deep stain remover. The new formula works in just one day to dissolve the bonds that lock stains in your teeth and better prevent stains from reoccurring.
Deep stain remover is off to a great start and is driving craft market share growth in the US toothpaste category. We launched our most advanced power toothbrush, iO 10, early last year, and we followed up with iO 2, the first iO design to help consumers trade up from a menu toothbrush to a power brush. The combination of premium and entry point innovation is working well, with Oral-B Power Brush up 50 basis points in the US. We also have strong innovation across all price tiers in Fabric Care.
Tide OXI Boost Power PODS are launching this quarter OXI Boost includes two times the OXI power to provide Tide's most powerful clean.
In addition, we have innovation at the mid-tier of our detergent price range, Gain+Odor Defense detergent lift away tough orders at the source and includes 40% more freshness ingredients.
Finally, Tide evo, our new laundry detergent developed on our breakthrough functional Fibers platform continues to exceed expectations in our now expanded Colorado test market. Evo offers superior cleaning performance in fully recyclable packaging with no plastic bottles or water. In the doors where evo is present, it's proven to be highly incremental to category growth despite its premium pricing, great progress across all criteria we set for the test market, including manufacturing readiness.
We have many other innovations launching right now in grooming upgrades to blades and razor handles on Gillette Labs and venous and venous now includes shower hooks with all razor handles. Tampax now has a 20% longer lead at break for improved fleet protection and always new pocket flex form, full-size protection in a tiny pack, making it incredibly convenient for on-the-go use.
Pampers as innovation coming in essentially every element of its portfolio over the next year. Home Care has innovation this spring on Febreze, Dawn, Cascade, Mr. Clean, and Swiffer.
We chose to maintain our innovation plans during the early stages of COVID. We did the same in the early stages of the severe inflationary cycle a few years ago. It's unclear how long this period of consumer softness will last, but we know P&G will be stronger if we keep innovation across every part of our portfolio and keep investing to drive consumer interest and demand in our categories.
As market leaders, in many of our categories, we know our retail partners rely on P&G innovation to drive market growth in difficult times for consumers, this role is especially important and offers a unique opportunity for our brands to differentiate themselves in terms of both performance and value. We will continue to drive productivity and make smart choices in all areas of cost to ensure we're mitigating headwinds along the way.
However, we won't cut to save the bottom line for a quarter only to lose momentum for the year. We will maintain a long-term view, which leads us to our revised outlook for fiscal '25. As we've highlighted, we continue to expect the environment around us to remain volatile and challenging from input costs to currencies to consumer, competitor, retailer and geopolitical dynamics and now tariff impacts I'll talk through each of these, and I'll get to tariffs in the end. So please bear with me.
On the top line, we now expect organic sales growth of approximately 2% for the fiscal year. With one quarter remaining, this deducts to fourth quarter organic growth of 0.5% to 4.5%. A key determinant in where we land within that range is underlying market growth. Regardless of where the markets remain weak or accelerate back to prior growth levels, we expect to grow our brands modestly ahead of underlying markets.
On the bottom line, our outlook is now for core EPS of $6.72 to $6.82 per share for the fiscal year. This equates to core EPS growth in the range of 2% to 4% for fiscal year '25 versus prior year core EPS of [$6.59]. This guidance deducts to a range of $1.37 to $1.47 for the fourth quarter.
Our outlook for commodity costs remains unchanged. Forecasting a commodity cost headwind of approximately $200 million after tax, which equates to a headwind of $0.08 per share for fiscal '25. Since last earnings, foreign exchange rates have eased modestly. We are now estimating a headwind of approximately $200 million after tax, which equates to a headwind of $0.08 per share for fiscal '25.
We continue to expect lower non-operating income benefits for the fiscal year. As a reminder, the fourth quarter base period includes the gain from the divestiture of our Vidal Sassoon brand in China. We're now forecasting only modest headwinds from net interest income and expense and an effective tax rate roughly in line with prior year. Combined, these below-the-line items are around $0.04 headwind to core EPS. We continue to forecast adjusted free cash flow productivity of 90% for the year.
and we have plans to pay around $10 billion in dividends and to repurchase $6 billion to $7 billion in common stock, combined returning $16 billion to $17 billion of cash to shareowners this fiscal year. This outlook assumes a range of $100 million to $160 million in BT tariff impacts in the fourth quarter or $0.03 or $0.05 per share. This assumes current tariff rates hold for the full quarter. When products and materials inbound to the US and other tariff impacted markets will be affected.
And when those goods will be recognized in our P&L, a finished products are sold to retailers. Currently, the largest US tariff impacts are coming from raw and packaging materials and some finished product source from China. While China accounts for just over 10% of total imports exposure to the US, the size of the tariff rate makes the cost impact more substantial.
The largest impact of responsive tariffs on US exports is from the finished products shipped from the US to Canada. We'll be looking for every opportunity to mitigate the impact, including sourcing flexibility and productivity improvements, we also need to consider some level of consumer pricing in effective categories and markets.
The guidance we shared today is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases geopolitical disruption, major supply chain disruptions, store closures or tariff changes are not anticipated within the guidance range.
To wrap up, we are pleased with the results. P&G people have delivered in a very challenging and volatile environment, and we remain focused on excellent execution of our integrated dynamic and market-constructive strategy. innovating and investing to drive market growth and balance to bottom line growth and value creation.
With that, we'll be happy to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Lauren Lieberman, Barclays.

Lauren Lieberman

So Andre, during the quarter, you guys had definitely discussed the retail inventory destocking in the US and then that kind of more to more of a real slowdown in consumer takeaway. And you'd also flagged similarly changing behavior in Europe. US consumer confidence metrics are very weak.
Europe, to a lesser degree, but still below consensus forecast. So just with that context, I would love to get your read on consumer behavior in these regions. And kind of what are you planning to do differently? I know you talked about all the innovation, but to support revenue growth and market share is things that feel like we're probably going to get worse from here from a market growth standpoint.

Andre Schulten

To start with the consumer. If you go back, as you rightly say, when we were at CAGNY, which was kind of around and middle of February, the consumption data that we saw through mid-January, which was the data that we had available at that point in time, still looked stable. We highlighted the inventory drawdown that we saw, but consumption levels were stable since then.
The consumer has been hit with a lot of volatility, market volatility that impacts their portfolios, their 401(k)s, volatility, economic outlook, uncertainty on the job market. Volatility in terms of mortgage rates expectations, all the divisiveness and nationalistic rhetoric that we saw around the world uncertainty on tariffs and the impact on prices and availability of goods.
So the consumer has been hit with a lot, and that's a lot of process. So what we're seeing, I think, is a logical response from the consumer to pause. And that pause is reflected in retail traffic being down. It's also reflected in somewhat of channel shifting in the search for the best value shifting into online, shifting into big box retailers and shifting into the club channel in the US specifically.
All of that put together, means consumption levels are down in both Europe and the US. The US has been growing over the past 12 months around 3% in terms of value consumption. What we've read through February and March was closer to 1%. Similarly, European consumer has been at about 3% over the past 12 months.
And again, that consumption level now is down to about 1%. Glass half full, P&G is growing or holding share. Europe volume share continues to be up in the most recent reading about 30 basis points. US shares are holding private label shares in both regions continue to trend down and actually accelerating downwards in Europe.
So the message we draw from this is that superiority of our brands delivering performance to consumers in uncertain times is still value to consumers. They are choosing our brands. And so we take encouragement to double down on our strategy because we see that as the only viable path through this level of volatility that we're experiencing. We're doubling down on innovation. We're doubling down on superiority.
We are heavily focused on driving productivity and heavily focused on ensuring our organization can be as agile and externally focused as possible to be close to consumers and close to markets. so that we can grow the business for all those jobs to be done that consumers don't want to fail in.
What we focus on as well is a longer-term outlook. You've heard us talk about our determination to remain invested in the business, which we think is absolutely critical. So even if we saw volatility in the short-term consumption, we are determined to remain invested both from a brand building innovation and go-to-market perspective.
And we continue to focus in a volatile environment on the two to three-year balance between top line and bottom-line growth. And that's what you'll see us talk about and execute.

Operator

Bryan Spillane, Bank of America.

Bryan Spillane

Andre, I guess I had a question just around how we're -- how we should begin thinking about approaching modeling, forecasting for '26. And so maybe can you give us a little bit of perspective on one, just category growth rates now and as we're kind of thinking about exit rates in the '26.
And then as we're looking at this year as a base, so fiscal '25 as a base, how much more incremental -- how many more incremental levers are there to pull as we look at next year in terms of either offsetting the incremental cost of tariffs or if demand begins to be subdued? So just trying to understand from you, just what are some of the factors you're looking at and that we should consider as we begin to kind of look at our model out past the end of fiscal '25?

Andre Schulten

Yes. Stepping back at the global level, obviously, the reduction in consumption levels that we saw in the US and in Europe have an impact at global growth rates. Over the past 12 months, we have seen global growth in the range of 3.5% value growth, that is now down to roughly 2.5%. We expect markets to return to the 3% to 4% growth rate, but it's very hard to predict, as you can appreciate with the current volatility we see in all of those factors I mentioned in response to Lauren's question, when that's going to happen.
So we're really taking a longer look at our plan over the next two to three years, ensuring that as markets return over that period to 3% to 4% growth, do we have sufficient investment ability to maintain superiority and expand the priority across all of those category country combinations we deem strategic.
So category growth, question mark in the short term, midterm, we expect it to return to 3% to 4% growth rate. The levers for us are the same levers that we talk about in our integrated strategy. I think the tariff impacts that are visible to us right now the growth level in the range of $1 billion to $1.5 billion. So it's not immaterial.
For us to offset those in the short term, we have to consider productivity which we will double down on and we have a very strong productivity plan over the next three years that I feel very bullish about. We have to continue to invest in innovation and superiority and enable actually more investment in those areas in the short term and the midterm.
And that innovation that we are pushing out will have to carry some level of pricing. If you think about the short and midterm with the uncertainty around tariffs and honestly, the difficulty to adjust sourcing, formulation or even asset location. I think it's clear that productivity, innovation and pricing are probably the short-term levers that we will employ.
But looking at all the other levers, including formulation and sourcing changes obviously as well. The fact that we are close to our consumer for the majority of our production, I think, is a benefit for us. But the number in and of itself, obviously, is still not immaterial, so we'll have to continue to figure out how to do that.
So the one piece I would want you to take away is assume category growth rates return to normal levels. And we will focus really on a glide path over two to three years to deliver mid -- low to mid-singles in terms of top line and mid to high singles in terms of EPS growth.

Operator

Steve Powers, Deutsche Bank.

Stephen Powers

So Andre, you talked about the innovation pipeline strength and the importance of maintaining the momentum on that front. I haven't parsed through all of the math implied in the updated guidance, but could you just talk about whether kind of net of everything, the level of investment that you're putting behind that innovation and behind demand building going forward has changed at all in this updated outlook.
And then whether or not the magnitude has given what you're seeing in the consumer, has the nature of that investment changed at all in terms of advertising versus trade or the like? Just how you're thinking about the support that you're going to put behind that innovation as you go forward?

Andre Schulten

Investment levels are always adjusted both across regions, markets, categories, brands and periods because the plans are obviously year-over-year different. If you look at fiscal year-to-date investment levels, specifically on media and advertising, we are flat in terms of percentage of sales.
And as we said, we have a very strong innovation pipeline in the balance of the year, which we intend to focus all investments on. What exactly the dollar spending is, we'll adjust as we see the plans unfold. But the one thing that is very clear to us is we continue to be committed to fully support the innovation across the fourth quarter. That innovation is best supported with strong communication.
So media advertising to our consumers is the primary vehicle of investment. I don't view us shifting the mix between advertising and trade promotion. Trade promotion always plays a role as we launch new innovation in driving trial, but it's mainly focused on visibility, and we have a pretty good track record of creating visibility on new innovation without deep discounting. The market so far is responding the same way.
You see relative stability in terms of promotion depth and frequency, both in Europe and in the US. And we certainly have no interest in changing that other than driving trial and awareness of the new innovation that we're pushing.

Operator

Dara Mohsenian, Morgan Stanley.

Dara Mohsenian

So Ander, you highlighted doubling down on superiority and innovation in this environment. It's obviously served P&G well in recent years. with the consumer pressure points we're seeing, if we do start to see more consumer trade down, can you discuss how you see P&G is positioned today versus past cycles?
And then also, have you seen any specific geographies or product categories where private label shares picked up so far? And you touched on this earlier, but what's P&G's market share performance been in some of those areas if, in fact, you're starting to see that dynamic play out a little more?

Andre Schulten

I think we are -- we continue to view ourselves as well positioned to serve the consumer even as their value equation might shift. We have a way better portfolio in terms of vertical value offerings from a brand perspective. And we have a very broad portfolio in terms of price points and pack sizes across all channels around the world. And that's true from China to Europe to North America. You also see in our innovation that we are focusing innovation on all value tiers in all categories.
As we're innovating on Tide, we're also innovating on Gain as we're innovating on Swaddlers, we're innovating on Luvs and Baby-Dry. And that's actually a good part of the innovation that is launching over the next few months is focused on driving innovation across all value tiers so that we can serve consumers and have relevant offerings that are superior versus the relevant competitive set at each price point and price tier.
So well positioned there, but I would say the teams are paying extra attention to ensuring that we have the innovation calibrated with the consumer environment in mind and the support models calibrated in the same way. That, I think, has enabled us through all of these periods of volatility. If you go back pre COVID inflationary cycle with 8%, 10% of pricing we've grown share or held share across all of those periods.
And even in this current period, with obviously some variability if you look at a month we continue to hold or grow share. Private label shares continued to trend down, which is not the answer, but it is a good indication that in a more value-conscious environment that portfolio is holding up well. We are able to serve consumers across all channels. You see the -- I mentioned the shift in the US specifically towards online, big box and club.
Again, in those channels, we're able to serve the consumer, hold share and grow categories. And if the consumer grow towards dollar channel or discounters, we're able to have the relevant offerings there. So Long answer, not an easy task. The team is very focused on ensuring we have the appropriate value proposition across all of those vectors. And so far, we've proven that we can do that.

Operator

Filippo Falorni, Citi.

Filippo Falorni

I wanted to ask a broader question around brand sentiment towards American brands around the world. Are you seeing any signs other than the Middle East, where I know it's been a pressure point for you guys for quite a few quarters of some anti-American brand sentiment around the world.
And specifically on China, we're seeing some improvement there. Obviously, SK-II back to growth, as you mentioned. Do you see some risk on the other side of the China business, particularly the OA and the air care business potentially going forward? And maybe just some expectation on the growth forward in China.

Andre Schulten

We have not observed in data that there is an impact in terms of nationalistic consumer behavior. We obviously are paying very close attention to social media or trade activation. And while we see some noise in markets like in Canada, none of that has yet resulted in any change of consumption behavior that we can attribute to any of those dynamics. In many of the markets that I would argue, actually, in most of our markets, our brands have been present for 10, 20 or 30 years.
And if you ask consumers, they view them as local brands that they grew up with not as a US brand that is foreign to them. I think that's the case in Europe. That's the case in China. And even in Canada, where probably the noise level is the highest consumption has held steady at 4% on a base of 6% in the previous year quarter. So nothing to report on that front yet.
And China actually we're very encouraged because we're seeing in a still tough consumer environment, SK-II accelerating to 11% growth in the quarter behind strong innovation on the super premium tier of LXP. But even the court here is responding very well to our communication strategy focused on brand superiority at PITERA.
Our new department store counters are working extremely well. Olay has picked up and returned to growth in the current quarter. So we now see 2% growth on our Olay portfolio behind innovation on anti-aging, following the trend that the market has made from the shift the market has made from toning benefit to entire aging benefit.
Our Baby Care business continues to do well. If you look at Europe focused markets, the one structural element we need to keep in mind is France is heavily impacting the Europe focused market results. The EGalim promotion law was impacted on March 1, '24 and led to heavy loading, both from a retail and from a consumer standpoint in that period. If you take that loading effect out, Europe focused markets would have grown 5% in the quarter.
So a long way of answering the question, that's not coming through in any of data that we're seeing either qualitatively or quantitatively, we'll continue to keep an eye on it, but our best response to all of this is to have the best brands available with the best value creation with the best superiority for our consumers and our retail partners.

Operator

Chris Carey, Wells Fargo Securities.

Christopher Carey

I just wanted to follow up on one area and then ask a broader question. But regarding Andre, your response, I believe, to Bryan's question and you're not giving fiscal '26 guidance today before we get that.
But the glide path back to category growth rates, I think you had said something like over the next two to three years, does that imply that you'd be a bit below historical category growth rates for the foreseen future, including into fiscal '26? Or was there an expectation that category growth would perhaps return to those levels into fiscal ['26] with a bit more pricing? I fully realize that there's no crystal ball, but it was kind of this question to terrify the very near term versus the medium term.
And if I could, your Investor Day was very much focused on opportunities in North America and in Europe. And coincidentally, those are the areas where category growth has slowed. And so are you thinking about adjusting your playbook at all in light of category development? Or is it still very much aligned with the strategy from a geographic standpoint that you laid out at Investor Day?

Andre Schulten

Our playbook aims to deliver balanced top and bottom line growth over a two to three-year period. We won't hit that algorithm every quarter. We won't hit it every year. We look back over a two to three-year period, we want to deliver that algorithm. That is true for how we approach the next two to three years.
As you said, there is no crystal ball. We don't know what the category growth rate is going to be, given all of the volatility that the consumer is facing and we won't guide today. I think the only logical conclusion is a wide expectation in terms of possible outcomes. That's how we have to plan. That's what our teams are getting ready to deal with and I think that's the only insight I can give you uncertainty, which we face means a wider range of planning and possible outcomes.
In terms of the opportunity that we have highlighted during Investor Day, what we're currently seeing only means that capturing those opportunities is even more important today than it might have been six months ago.
So the $5 billion growth opportunity we've highlighted in the US by driving household penetration of our biggest brands tied cascade bounty, for example, all -- only in 40% or less of US households is a huge opportunity by further segmenting the consumer base and being more targeted in serving them, communicating with them and driving trial and repeat across those brands. Further doubling down on new innovation, new jobs to be done that consumers have not yet widely adopted.
We keep talking about fabric enhancers. That's still 30% household penetration or below and even only 40% to 50% of load penetration, driving power oral care as an opportunity to increase our health for consumers across the US with the launch iO 2 converting manual toothbrush users to electric toothbrush users. All of those opportunities are still there. We still see $5 billion of growth that we can capture.
And that's why we want to double down on our investment because that's really focused on capturing those growth opportunities. And the same is true for Europe. So nothing's changed. And that's why you see our almost stubborn commitment to not letting go of innovation, not letting go of investment and not letting go of our collaboration with retailers to serve the consumer even better in the future.

Operator

Peter Grom, UBS.

Peter Grom

So I was hoping to get some more perspective on international market growth. You touched on the Europe focus markets being up 1%. You outlined the impact France is having Latin America up 6% despite challenges in Mexico. So just want to be curious if you could unpack category growth in those regions versus maybe market share performance?
And then you outlined some of the shifts in consumption that are happening in Europe, in your response to Lauren's question. I'd be curious what you're seeing in terms of consumption across Latin America more broadly.

Andre Schulten

We're very pleased with the Latin America results. Maybe to start there, Peter, 6% organic sales growth is a great result with a very strong base. I think it was 17% in the base period. Brazil, growing 8%; Mexico growing 6%, and that's with Mexico's consumers probably as volatile as the US consumer.
So we feel good about category growth in the region. We have Argentina now with an import market, which I think stabilizes the region from an overall growth perspective. And I see, again, strong innovation and focus of both our Brazil teams and our Mexico teams as the biggest markets in the region to drive innovation, drive category growth and help accelerate that growth rate even further. From a China perspective, the message hasn't changed. The market is still flat to down across our categories.
We are making progress within that minus 15 quarter 1; minus 5 quarter 2; minus 2 quarter 3. But I do believe that, again, recovery in China will take time and won't be a straight line. The message there hasn't changed, and we focus on steady progress on our growth rate and bringing more and more of our categories and brands into positive territory, but China will continue to be volatile in our mind.
The rest of the world, again, I won't have much more intelligence other than to say we saw growth rates slow from 3.5 to 2.5. Structurally, we believe that the world will return in our categories to 3% to 4% growth.
And as I mentioned in response to Chris's question, we don't have a crystal ball, so the only way to deal with the uncertainty that comes with the current consumer growth rates is to focus the organization on the strategy and plan for a range of outcomes.

Operator

Bonnie Herzog, Goldman Sachs.

Bonnie Herzog

All right. I just had a quick question on guidance. Based on your update, it still implies an acceleration in Q4 versus Q3 and then just thinking about that in the context of softer consumption trends, just wondering if there could be further risk there or just maybe what gives you the confidence that things might accelerate a bit in Q4 versus Q3.

Andre Schulten

You're right, we are planning for a wide outcome in Q4, which is reflective of the comments I just made in terms of market growth assumptions. That really is the highest level of variability that we see. And the current guide, as I had in the prepared remarks, has a wide range from [0.5], I think, to 4.5% in the next quarter, which is indicative of the uncertainty we see from a consumer behavior standpoint.
The one uncertainty we believe that has impacted us in Q3 that is no longer part of the range that we're providing is inventory. We feel that consumption is now moving again in line with -- or inventory consumption is moving in line with shipments.
So no inventory destabilization in the quarter. But we also don't assume that, that inventory that we lost in Q3 will come back because we believe it's an outcome of the consumer shifting into channels that are more inventory efficient. So the guide for the quarter is wide. We believe it appropriately reflects the range of outcomes we see and appropriately has risk protection for that range.

Operator

Mark Astrachan, Stifel.

Mark Astrachan

I wanted to go back to your commentary, Andre, about the shifting consumer in terms of where they're purchasing. You called out [club], you called out more mass channel. I don't think that's especially new. But I guess are you seeing acceleration in the most recent quarters is sort of one? And then two, if not directionally new, meaning that the consumer has been shifting to Walmart or Costco or club channels.
In general, does that change the way that the company approaches selling into those channels from a price pack or volume versus price mix standpoint. Has that evolved over the last couple of years? And how do you see it kind of changing from here, especially in the context of what you called out more recently.

Andre Schulten

No, you're exactly right. The trend is not new. We've been seeing this shift into large box retailers online and club for a number of quarters, and we've been talking about it. And so our portfolio, as you rightly say, is well positioned to play with the consumer moving and maybe accelerating the move a little bit over the past quarter into those retailers. Our brands are well positioned.
Our pack sizes and price points are adequate and we get great support across the entire trade landscape. So we're not worried about it. What -- I think maybe some of the elements that have accelerated that is a little bit less support in the drug channel because of the difficulties in the drug channel, and that accelerates, I think the move into some of the other channels we're talking about.
But as you rightly say, I don't think it's a fundamental shift other than it gives us, I think, more clarity to explain why we see an overall inventory reduction in quarter three and why we believe that inventory will likely not come back because as we see more business from those channels and those retailers, they tend to be more inventory efficient, which is really the only structural element where it's relevant. Our brands are positioned well in all the channels, and that's part of the job.
We have to make sure we're there wherever the consumer decides to go.

Operator

Andrea Teixeira, JPMorgan.

Andrea Teixeira

So Andrea, first a clarification on the $1 billion -- $1.5 billion impact that you included from tariffs. Is that -- I'm assuming obviously that's an annualized impact and most related to side to raw material sourcing from that 10% that you talked about exposure to China in some of the exports of Canada that you alluded to.
Is there any -- like when we think about then if that's correct, the real question that I have is that at the midpoint of that impact let's say, [1.25]. That would be around 3% of annual costs and pricing needed to offset that would be broadly 1 or 2 points. And as you said, you're going to use productivity as you always had leaned into productivity to offset other inflationary costs in the past.
So it doesn't not seem hard to mitigate that from a value accretive. Also value accretive innovation that you have -- so how we should be thinking more long term or medium term, the mitigation efforts that you're going to have understandably not in the Q4 fiscal but going to the medium term?

Andre Schulten

Andrea, yes, the $1 billion to $1.5 billion before tax is the impact that we are estimating based on what we know today. That means the tariff rates that have been announced and enacted both in the US and in all other markets in response to the US tariffs. Exactly as you say, that's about 3% of cost of goods sold about 140 to 180 basis points margin impact.
The point -- this is not an average discussion, though, right? Because the impact is on certain SKUs on certain brands and certain category country combinations. So when we average this out across the globe, the numbers that you quote are correct.
But if you look at certain market category combinations, the numbers in terms of pricing are way more significant that we would have to take a net of what we believe we can deliver in productivity. And and other mitigating factors.
So that's exactly the work that the teams are doing now, and that's why we keep all of the tools on the table. We will start with productivity. We will look at sourcing changes and formulation changes, which typically take longer. We will look at pricing with innovation, and we will look at straight pricing. All of those elements are on the table, and we're working through them right now.
But it's important to understand, this is an average global number. The number that you have by SKU, by category, by brand, by market is very different. And that's where the decision needs to be made, right? That's what the consumer will see, and that's where we need to make the interventions. But at an aggregate level, it's manageable. We'll just need to work through the details across the portfolio, which is exactly what team is doing.

Operator

Olivia Tong, Raymond James.

Olivia Tong

My question is also around the pretax tariff impact. So the $1 billion to $1.5 billion. And if you could just compare contrast to the [$160 million, $170 million] in Q4? Was there some forward buying or other factors that are resulting in a smaller impact in Q4 versus your anticipated full year run rate?
And then just following up on that, I wanted to know a little bit more in terms of the pricing plans to mitigate the tariff impact because the categories that sound like they're hardest hit, for example, like tissue towel, are categories that have seen a more substantial deceleration and typically have significantly higher private label exposure and competition overall.
So as you -- as the team do their work in terms of trying to figure out how to go about pricing. If you could just talk in terms of the specifics around categories that would be great.

Andre Schulten

The Q4 impact of [$100 million to $160 million] BT is just one month because the way the tariffs flow, they are an inventoriable costs so they flow through our variance holding policy, which means we really only have one month of impact within quarter four.
So then you take that times 12, you get straight to the $1 billion to $1.5 billion before tax that you are quoting. Look, on your pricing plans, what you're describing is exactly the discussion we have in every pricing move. There's commodities as foreign exchange rate effects. Now there's tariff effects.
So working through exactly what is the right plan, by brand, by market? What combination of pricing over what period of time is the right answer. That's a very complex exercise, and it really can't be answered at a market or at a category level. So let us do the work. And as we do that, it will be reflected in our guidance range but is not new to us. This is what we do. And generally, we are doing it well.

Operator

Robert Ottenstein, Evercore ISI.

Robert Ottenstein

A couple of follow-ups. First, in the press release, I believe you stated that in China, you were taking pricing in skin care. So I'd like to understand a little bit the logic behind that given that it's a tough market. and what gives you the confidence to get that price? And is it, in fact, sort of strategic pricing that you need to be higher to get the high-end consumer interest?
So that's first. And then second, love to understand a little bit more about how -- from your perspective, the major retailers are thinking about what's going on with significant changes in trade policy, how they're thinking about their suppliers in that context, their suppliers, supply chains? Are -- is there any indication that they are looking to change who they're working with, given various people's supply chains?
And are they looking at private label differently? You had mentioned that private label continues to be flat or trending down, is that because the consumer, for whatever reason, doesn't want private label because the brands are marketing so well and the value is so strong? Or are the retailers, at least in your categories, deemphasizing private label? And what's the logic behind that? And maybe in that context, touching on diapers.

Andre Schulten

China skin care pricing, just a very quick answer, it's behind innovation. We have strong innovation out on Olay. We talked about the super premium innovation on SK-II, and that's just congruent with the business model. You innovate, you price, and you provide better value and better outcomes for the consumer and drive market growth. I won't speak for retailers, Robert, many of the aspects of the question you asked, I think are better asked of our retail partners.
What I will tell you is that our vision of partnering with our retailers as we talked about Supply Chain 3.0, integrating our supply chains because we are close in terms of manufacturing locations, warehousing locations to their supply chains, I think is an advantage that played out pre-COVID throughout COVID, throughout the inflationary period where sourcing became more difficult and more expensive.
And I don't expect that to change. I think we appreciate our retailers' willingness to engage with us and build a better supply chain. And I think they appreciate our ability to provide supply chains that are stable, reliable and cost efficient. And I think that is the focus for us.
I won't speak to their private label strategies. I think we will see them articulate that and play it out. What our job is to provide the best possible branded offering in the store, -- which is why we continue to focus on investment innovation across both the product as well as go-to-market and supply chain.

Operator

Kevin Grundy, BNP Paribas.

Kevin Grundy

Rookie mistake, sorry about that. Andre, question on enterprise markets here, which have slowed a bit. Can you just comment broadly -- and I know some of this is China, we've talked about the Middle East before. But what was really sort of a key growth driver for the company now has slowed pretty precipitously? Can you comment on industry growth rates in key enterprise markets? How much of this is slowing? How much of this is industry specific versus how much of this might be more Procter specific because we don't have a great deal of granularity on that?
And then sort of more forward-looking as we think about fiscal '26, what is the company's sort of expectation, broadly speaking, in terms of growth rates for enterprise markets? So any color there would be helpful.

Andre Schulten

If you look at the growth rate of enterprise markets in our portfolio, it has been, as you say, it has been a great contributor to the company results, 6% last year, 15%, 10%. So a great run. The market dynamics are different by region. As I mentioned before, Latin America -- we feel very good about the market growth rates are stabilizing. We are doing well within the key markets.
So I continue to see North America -- Latin America contributing mid- to high single-digit growth rates to our portfolio. Enterprise markets in Europe are heavily impacted by Turkey, and you've seen the situation in Turkey, both from an economic standpoint and from a political standpoint, that continues to weigh on enterprise markets.
But if you look outside of Turkey, again, growth rates are stabilizing. And I feel good about our ability to continue to drive growth at average portfolio rates or above from Europe enterprise markets. And then the last region, Asia, Middle East, Africa within the portfolio, the biggest driver continues to be the Middle East.
But if you look at markets like India, we are profitable, and India is driving mid-single-digit growth very nicely. We have local production on the ground. We have R&D capability on the ground. The market gets better every time we look at it. So again, we feel very solid about growth opportunity there, but it's enterprise markets.
They are volatile by default. That's why we manage them as enterprise markets. And the same volatility we see at the moment in our focus markets, for sure, is to be expected in enterprise markets. So I won't give you a '26 guide. I will tell you the same thing I've mentioned before, if there's any conclusion from the current visibility is, it's going to be a wide range.

Operator

Kaumil Gajrawala, Jefferies.

Kaumil Gajrawala

I guess a couple of things. There's so much conversation about macro. But if I recall, the innovation pipeline was so much heavier in the back half than the front half of this year. So is -- with everything that's going on in whether it's macro or tariffs that sort of thing, is it slowing your -- the post of innovation rollouts or expectations from contribution of those innovations? And I suppose I see that in the context of sometimes when the consumer is under pressure, they tend to not want to try new things. And I'm just wondering if that sort of changes the calculus on your plans for rollouts.

Andre Schulten

I don't think it does. As we said, we are committed to continue to drive innovation into our categories. And for us, we continue to believe it's the most important driver of category growth and therefore, getting that incremental consumption, we've highlighted as a big opportunity in focused markets, both Europe and North America. I think the trick here is simplicity of the proposition. What you don't see us do generally is try to drive SKUs for news and make the category more complex.
What we're trying to do is restage propositions and be very clear on what the incremental benefit and incremental value for the consumers, supported by our retail partners. If we do that right, it is category accretive. And again, you heard us talk many times about SKU complexity and simplifying the shopping experience for consumers.
And you're right, now is the time more than ever to go down that path and work with our retail partners to ensure that all the noise that is irrelevant for the consumer, as expressed by being a small fraction of the sales while being a bigger part of the shelf or that noise needs to go away so the consumer can more clearly see the benefits of the strong innovation that some of the biggest brands are bringing to market.

Operator

Robert Moskow, TD Cowen.

Robert Moskow

Andre, I wanted a little more clarity on the commodity inflation guidance. It stayed the same at $200 million. Is that including the tariff impact or not? I think that's the first question. And then also, we've noticed that resin prices are down a lot since the start of the year, probably in the mid-teens related to crude oil. Is it possible as you head into fiscal '26 that there actually is this crude oil benefit that flows through and helps reduce the cost of the tariffs that hit your P&L?

Andre Schulten

The commodity inflation number that is quoted, the $200 million is excluding the tariff impact. So for clarity, we kept it separate. So we see $200 million impact from commodity inflation, and -- sorry, $100 million to $160 million impact, growth impact from tariffs, and that impact for next year is $1 billion to $1.5 billion, again, growth impact of tariffs. The commodity impact for next year, I won't comment on. We always forecast that spot. So whatever the spot is at that point in time when we lock our plans for next year will be underlying guidance. And if anything, I'll give you the same answer, the range will be wide.

Operator

Korinne Wolfmeyer, Piper Sandler.

Korinne Wolfmeyer

Just wanted to touch a little bit on how you feel about the broader agility of your supply chain? And how quickly and easily could you shift things around to try and mitigate the impacts here in the more of the near term? And then also, can you just touch a little bit on what your conversations with both your suppliers and also maybe the retail partners have been on the potential to kind of help absorb those tariff costs? Any context there would be great.

Andre Schulten

Yes, the first part of the answer I'll give you is we are I think in the favorable position that the majority of our supply chain is close to our consumption. We've made those investments very deliberately over the last seven, eight years. We invested more than $10 billion just in the US to locate production close to the US consumer, create jobs.
And I think we're seeing the benefit of that which was enabled by a more competitive tax environment in the US. So we're starting from a good place. Supply chain changes require certainty. We don't want to make short-term sourcing changes or short-term formulation changes unless we know what the environment is we're dealing with. So we're really waiting for certainty at this point in time for us to make decisions because those decisions are generally a, they have lead time of multiple months, sometimes years.
And b, reversing them have similar lead times. So any knee jerk reaction doesn't make a whole lot of sense. On our conversations with retail partners and suppliers, I won't comment. They are ongoing in any environment. And again, we had a lot of volatility over the last six, seven years.
So certainly, the communication lines are always open. And again, you see our plan develop over the next few months as we get closer to the year and hopefully have a bit more visibility. That concludes the call for today.
Thank you for your time. I hope you see and feel our commitment and our conviction that the business model, the strategy across the portfolio we've chosen, the focus on superiority, the focus on productivity, the strength of our organization has us both committed and convinced that we will be able to deliver on algorithm over a two to three-year period.
While maintaining investment in the business for growth with our retail partners and the benefit of consumers in the near term and the midterm. That conviction will not change, and we will manage our business in the short term and the midterm along those lines.
Thank you for your time today, and we'll be available for any other questions you might have. Have a great day.

Operator

That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.