General Mills Hit by Higher Food, Shipping Costs -- Update
22 March 2018 - 1:05AM
Dow Jones News
By Annie Gasparro
General Mills Inc. said higher food and shipping costs hurt
profitability in the latest quarter and will weigh on the food
maker's earnings for the year.
Comparable sales rose 1% in the quarter, including a bump in the
U.S., as more people bought General Mills products like Nature
Valley granola bars and Cheerios cereal. But like its competitors,
General Mills paid more for ingredients and said shipping costs in
North America were near 20-year highs, dragging adjusted operating
margins down 1.2 percentage points to 15.7%.
Chief Executive Jeff Harmening said General Mills may raise
prices to reflect the higher costs.
"Our third-quarter operating profit fell well short of our
expectations, " he said. "We are moving urgently to address this
increasingly dynamic cost inflation environment."
For its fiscal year ending in May, General Mills projects
adjusted earnings per share will rise by up to 1%, compared to
previous guidance for an increase up to 4%.
Shares fell 10% Wednesday in early trading. General Mills shares
have fallen 25% over the past year, while the S&P 500 has risen
16%.
Mr. Harmening, who took over as CEO less than a year ago, said
he plans to continue selling off the Minneapolis-based
conglomerate's weaker businesses while acquiring new brands with
more growth potential.
General Mills in February agreed to buy pet-food maker Blue
Buffalo for $8 billion. Mr. Harmening said the deal will give
General Mills a foothold in the premium pet food aisle, where sales
are growing significantly faster than for products like baking
mixes. He intends to expand Blue Buffalo to more retail outlets and
to expand the brand with new products like treats.
Those acquisitions come alongside divestitures of older brands
like the Green Giant frozen and canned vegetable business that
General Mills sold to B&G Foods Inc. in 2015. Wall Street
analysts have speculated that Hamburger Helper or Bisquick could be
the next brands General Mills sells.
The company has struggled in recent years as customers migrated
away from those brands. Yoplait yogurt, meanwhile, was hurt by the
rapid expansion of Greek-style yogurt and nondairy
alternatives.
Lately, General Mills' brands like Cheerios and Progresso soup
have been selling faster in stores than rival brands -- a sign of
progress for a company that hasn't seen that kind of success since
2014, according to J.P. Morgan analyst Ken Goldman. He and other
analysts questioned whether General Mills can raise prices without
losing customers.
Profit for the quarter rose to $941.4 million. Excluding
one-time items, adjusted earnings of 79 cents a share topped
analysts' expectations of 78 cents, according to FactSet. Revenue
rose 2% to $3.88 billion, beating projections of $3.87 billion.
Imani Moise contributed to this article.
Write to Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
March 21, 2018 09:50 ET (13:50 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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