Moody's Ratings confirmed The Procter & Gamble Company's Aa3 senior unsecured ratings, its Aa3 long-term issuer rating and its Prime-1 commercial paper program ratings, and simultaneously upgraded the outlooks for both P&G and The Gillette Company from stable to positive. The ratings on guaranteed debt issued by Gillette and on industrial revenue bonds backed by P&G were also affirmed.
The change in outlook to positive reflects Moody's view that P&G continues to produce significant positive free cash flow and achieve earnings growth. According to Moody's, that performance has been supported by a combination of pricing actions, new product innovation and programs to reduce costs. The ratings agency emphasized that P&G has reshaped its portfolio to prioritize globally scalable, stable products that have delivered steady earnings and modest growth even during times of geopolitical strain and consumer spending softness.
Moody's described P&G's credit metrics as consistently strong for the current rating category. The firm highlighted retained cash flow to net debt as well above 25% and measured debt to EBITDA leverage at below 2x, figures Moody's regards as supportive of the Aa3/Prime-1 assessment.
Moody's also addressed the company's recent strategic move to expand into the supplements market. The ratings agency noted P&G's announced acquisition of Thorne for $3.8 billion as evidence that P&G can grow in higher-growth segments while maintaining low leverage and robust cash flow metrics through tuck-in acquisitions. Moody's projects that pro forma leverage for the Thorne deal will rise to just above 1.6x for the fiscal year ending June 2027, but expects that leverage will return below 1.6x as a result of innovation, cost optimization, and the scaling and integration of the Thorne brand within P&G's supplements operations.
In explaining its decision to affirm the ratings, Moody's pointed to several factors. The firm noted that P&G is making investments to regain or improve market share amid a soft global economic backdrop and heightened geopolitical tensions. The ratings agency also cited the company's leadership transition to a new chief executive officer and observed that ongoing and future acquisitions represent an event risk.
Moody's said P&G's Aa3/Prime-1 ratings reflect the company's strong credit profile, its ability to generate meaningful free cash flow and the financial flexibility afforded by a large portfolio of well-known branded consumer products that hold leading global market shares.
Looking ahead, Moody's outlined the conditions that could change the rating level. An upgrade could be considered if P&G sustains a strong operating profile, maintains or expands market share in key categories and grows profitability. Conversely, a downgrade could follow if the company's size, diversification or market position deteriorates, or if margins and free cash flow contract, or if financial policy becomes more aggressive - including a sizable acquisition financed with debt.