Price hikes drive General Mills profit beat, forecast raise; shares jump

Reuters

Published Mar 20, 2019 09:01AM ET

Price hikes drive General Mills profit beat, forecast raise; shares jump

(Reuters) - Cheerios cereal maker General Mills (NYSE:GIS) racked up higher-than-expected profit in the third quarter after it lifted prices to combat higher costs, spurring a rise in its full-year forecast and driving shares up 6 percent.

The packaged goods industry has been battling surging freight and commodities costs all of last year as railroads and truck fleets hike rates, forcing them to pass on the additional costs to consumers.

The burden of rising costs has been a double-whammy to the industry that has been struggling to turnaround and adapt to changing consumer preferences as they move from processed and sugary foods.

While price hikes by General Mills have boosted margins and helped overturn three quarters of declining revenue at its North America business, its biggest unit, it has partially impacted volumes for snacks and yogurt businesses.

The company has also been cutting costs to prop up margins and had last year decided to cut 625 jobs by the end of fiscal 2019. Adjusted gross margin for the quarter rose 170 basis points to 34.2 percent and beat the analyst average estimate of 32.89 percent.

"Our year-to-date performance and fourth-quarter plans give us confidence that we will meet or exceed all of our key fiscal 2019 targets," Chief Executive Officer Jeff Harmening said in a statement.

General Mills, which owns dessert pre-mix brand Betty Crocker and Nature Valley granola bars, said it expects adjusted profit for fiscal 2019 to be between flat and 1 percent from a prior forecast range of flat to down 3 percent.

Excluding one-time items, the company earned 83 cents per share for the quarter ended Feb.24 and beat expectations of 69 cents, according to IBES data from Refinitiv.

The company's net sales rose 8 percent to $4.20 billion, primarily driven by its acquisition of pet food maker Blue Buffalo, and was largely in line with expectations of $4.19 billion.

Shares of the company rose to $49.82 in early trading and drove gains for fellow packaged food companies.

Shares of Conagra Brands, Kraft Heinz (NASDAQ:KHC) Co, J.M Smucker Co and Mondelez International Inc (NASDAQ:MDLZ) were up between 0.3 percent and about 1 percent.