Mounting cost pressures
General Mills (GIS) reported better-than-expected fiscal 3Q18[1. fiscal 3Q18 ended February 25, 2018] results on March 21, 2018. However, GIS stock fell 8.8% despite beating analysts’ expectations on sales and EPS (earnings per share) and is trading at its multiyear low.
General Mills’s top line received a boost from higher net price realizations and improved mix. Favorable currency rates supported its sales growth rate in fiscal 3Q18.
General Mills’s (GIS) adjusted earnings increased 9.7% on a YoY (year-over-year) basis, reflecting benefits from the decline in tax rates and a lower outstanding share count.
However, what dented investor sentiment on GIS stock is its mounting cost pressure and sluggish margin performance. The company lowered its adjusted EPS guidance for fiscal 2018. GIS anticipates higher-than-expected inflation in commodity prices as well as increased transportation costs, which were led by carrier capacity constraints and driver shortages.
The higher-than-expected supply-chain cost pressure is expected to hurt the company’s margins and EPS growth rate in fiscal 2018.
General Mills (GIS) stock has underperformed its peers and registered a decline of 23.2% on a YTD (year-to-date) basis on March 21, 2018. The company also lagged the S&P 500 Index, which is up ~1.4% during the same period.
Analysts expect the cost pressures stemming from the inflation in commodity prices and transportation to hurt the margins of packaged food manufacturers in the US. These companies’ stocks are also trading in the red on a YTD basis.
The stock prices of Kraft Heinz (KHC), Campbell Soup (CPB), Hershey (HSY), Conagra Brands (CAG), Kellogg (K), and J.M. Smucker (SJM) fell 20.3%, 12.3%, 13.2%, 6.2%, 6.3%, and 3.3%, respectively, on a YTD basis.