Global food giant General Mills blamed a disappointing third quarter on higher logistics and commodity costs © PA Images
Global food giant General Mills blamed a disappointing third quarter on higher logistics and commodity costs © PA Images

General Mills takes action on costs as profits drop

Will Green is news editor of Supply Management
23 March 2018

Food giant General Mills has warned higher costs for freight, logistics and commodities have cut into margins.

In its latest results covering the third quarter to 25 February 2018, the maker of Häagen Dazs and Yoplait said adjusted gross margin had fallen 2.5% to 32.5%.

“This was driven by higher input costs, including increased freight and logistics costs, commodity inflation and other operational costs, as well as higher merchandising expense,” said the firm.

The global company, which is headquartered in the US, said operating profit was down 6% to $628m on sales of $3.88bn, which were up 2%.

In response General Mills is increasing the number of qualified freight carriers and using different modes of transport to mitigate rising costs, it said.

The company said it would be introducing cost savings initiatives and “maximising the impact of the new global sourcing capability”.

Jeff Harmening, chairman and chief executive, said: “Our third quarter operating profit fell well short of our expectations and cost pressures are impacting our full year outlook.

“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.

“We are moving urgently to address this increasingly dynamic cost inflation environment.  We've taken actions to improve profitability in the near term, and we've launched initiatives that will reduce our long-term cost structure. While these actions will only partially offset the cost headwinds in fiscal 2018, we are confident they will strengthen our bottom-line results beginning in fiscal 2019.”

The Wall Street Journal reported that the company, which makes Cheerios and Wheaties in the US, will raise prices on cereals and snacks.

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