Inflation and sour yogurt sales sink General Mills
New Federal Reserve chairman Jerome Powell isn’t the only one that has to worry about inflation. Rising prices for shipping, oil and other commodities are putting the squeeze on Cheerios and Wheaties owner General Mills.
Shares of General Mills (GIS) plunged nearly 10% Wednesday — to their lowest level in more than five years — after the company said in its earnings report that “cost pressures” were hurting profits.
General Mills chairman and chief executive officer Jeff Harmening vowed to cut costs elsewhere in order to boost margins.
The company has already closed some manufacturing facilities around the globe and is looking at other restructuring possibilities as well.
General Mills added Wednesday that it is also looking to use more trucking companies and other freight carriers to try and keep costs down.
But Harmening conceded that even though General Mills is “moving urgently” to tackle higher costs, the moves will only partially offset the profit pressure this year.
Harmening did express confidence that the bottom line would begin to improve in 2019 though.
None of this would be a major problem for General MIlls if its sales were soaring. But they are not.: Sales rose just 2% in the most recent quarter.
General MIlls is hardly the only food company that is struggling. The entire industry is in a tough spot right now. Costs are going up, but Amazon (AMZN), Walmart (WMT) and other grocery companies are trying to keep prices low.
That’s great for supermarket shoppers but bad for General Mills and makers of other staples like Kellogg (K), Campbell Soup (CPB), ConAgra (CAG) and the Warren Buffett-backed Kraft Heinz (KHC).
Those stocks all fell Wednesday and are down for the year as well.
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General Mills has a bigger problem though. Consumers aren’t eating sugary cereals as much as they used to and they are also shunning the company’s Yoplait brand of yogurt.
Cereal sales dipped slightly in the quarter while yogurt sales fell 8% from a year ago.
General Mills is trying to find new ways to boost revenues with healthier products like the 2014 acquisition of organic macaroni and cheese maker Annie’s.
The company also announced plans earlier this year to buy natural pet food company Blue Buffalo (BUFF) for $ 8 billion. The purchase should be completed later this year.
But for the time being, it looks like General Mills shareholders will remain hungry for more savory returns from the stock.