The U.S. multinational food corporation General Mills (GIS, Financial) reported better-than expected third quarter results. By contrast, an unexpected increase in the supply chain along with rising costs and lethargic margin performance let the company somewhat down during the quarter.
Despite delivering fine third-quarter earnings, the company issued a dull profit outlook. The company’s stock dropped 8.8% after it released its earnings report..
By the numbers
The company’s earnings per share came in at 79 cents while revenue stood at $3.88 billion. The company generated third-quarter net income of $941.4 million or $1.62 per share, up from $357.8 million or 61 cents per share, reported in the year-ago quarter. By contrast, the company’s operating margin plummeted 6% on a constant-currency basis.
Again, General Mills’ performance in European and Australian markets has been downtrodden. Though revenue in the two regions spiked 11% each, operating profits plunged 36% year over year on account of mounting input costs.
Rise in costs
The company has been a victim of huge transportation costs, like other packaged food giants. As such, freight costs had increased the highest in the past 20 years, rising commodity costs comprising grains, fruits and nuts added insult to the injury. Company’s Chairman and CEO, Jeff Harmening, commented:
"Like the broader industry, we're seeing sharp increases in input costs, including inflation in freight and commodities. Because of our improved volume performance, we're also incurring higher operational costs,"
As a part of its costs saving measure, the company said that it would increase the number of qualified freight carriers and use different modes of transportation.
Guidance
General Mills projects its earnings per share to remain flat or surge 1% on a constant-currency basis for the whole year. Rising supply-chain cost and hike in transportation and operational expenses are expected to hurt its margins. Operating profits are projected to decline by 5% to 6%. On a positive note, though, a fall in tax rates, favorable pricing and mix and increased cost savings due to global sourcing program are expected to drive the company’s bottom line.
Disclosure: I do not hold any position in the stock mentioned in this article.