Procter & Gamble, the consumer goods behemoth behind household staples like Tide, Pampers, and Old Spice, is bracing for choppy economic waters. The company has announced plans to cut up to 7,000 jobs – roughly 6% of its global workforce – over the next two years as part of a broader restructuring effort.

The move, unveiled at the Deutsche Bank Consumer Conference in Paris this week, will see around 15% of P&G’s non-manufacturing roles eliminated.

CFO Andre Schulten described the shake-up as a necessary pivot to weather near-term pressures and set the stage for long-term performance.

“This restructuring programme is an important step towards ensuring our ability to deliver our long-term algorithm over the coming two to three years,” he said. “It does not, however, remove the near-term challenges that we currently face.”

P&G, headquartered in Cincinnati, Ohio, had a global headcount of about 108,000 as of June 2024. The cuts are expected to affect back-office operations rather than manufacturing lines. The company estimates the restructuring will cost between US$1 billion and US$1.6 billion.

A leaner, faster ship

The reshaping of P&G goes beyond job cuts. Schulten noted that the company aims to “make growth broader and teams smaller,” with a view to speeding up decision-making and harnessing automation and digital tools to boost productivity. The strategy also includes reevaluating its product portfolio and potentially withdrawing from certain markets or brand categories.

While Schulten did not name specific brands on the chopping block, he indicated further details will be revealed during the company’s next quarterly earnings, scheduled for 29 July.

Pressure from inflation and policy shifts

The backdrop to this corporate slimming is a consumer landscape marked by caution and cost-cutting. American shoppers are tightening their belts as inflation lingers and economic uncertainty looms large.

According to the University of Michigan’s consumer sentiment index, confidence in May fell for the fifth consecutive month, down 2.7% from April to 50.8 – the second-lowest score in the survey’s 75-year history. Since January, sentiment has dropped nearly 30%.

This malaise has hit businesses across the board, but companies like P&G, which rely heavily on brand loyalty and everyday spending, are particularly exposed.

On top of that, trade tensions are once again flaring up. The US Congressional Budget Office (CBO) recently evaluated former president Donald Trump’s proposed tariff regime, forecasting that while it may reduce the federal deficit by US$2.8 trillion over a decade, it would come at the cost of slower economic growth and higher inflation. The CBO expects tariffs to nudge inflation up by 0.4 percentage points in 2025 and 2026, while denting household purchasing power.

Tariffs bite into profits

For P&G, tariffs are proving more than a thorn in the side. The company disclosed that its fourth-quarter earnings could take a hit of 3 to 4 cents per share due to tariff-related headwinds. If the current tariff landscape holds, it projects a pre-tax cost of around US$600 million in fiscal 2026.

In an April earnings call, P&G said its greatest exposure stems from tariffs on raw materials and packaging sourced from China. The company is now exploring new sourcing strategies and efficiency measures to mitigate the blow, though price hikes on certain products may be unavoidable.

The issue extends across the consumer goods sector. The Consumer Brands Association – representing heavyweights like Coca-Cola, General Mills, and P&G – recently sounded the alarm about the impact of tariffs on essential ingredients that cannot be domestically sourced. Even commonplace inputs like wood pulp and cinnamon now face import tariffs, adding pressure on margins and pricing.

A reset in the making

While P&G’s last quarterly results showed better-than-expected profits, sales lagged behind forecasts. The company also trimmed its sales and earnings targets for the full fiscal year, acknowledging the bumpy road ahead.

The job cuts, portfolio pruning, and cost-saving efforts mark a reset for the 187-year-old firm, which must now juggle internal restructuring with external volatility. Schulten summed up the balancing act: “We see more opportunities to make growth broader and teams smaller, making work more fulfilling, faster and more efficient.”

The company is betting that streamlining operations now will help it stay ahead of the curve as macroeconomic uncertainty continues to ripple across sectors.