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What Drove General Mills’ Margins in Q2 2019?

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Margins expanded

General Mills (GIS) impressed investors with its margins in the second quarter of fiscal 2019. The company managed to expand its margins despite higher input costs, which is commendable. Other major food stocks are struggling on the margins front.

General Mills’ adjusted gross profit margin expanded by ten basis points to 34.5%. The adjusted operating profit margin increased by 40 basis points to 17.3%. General Mills’ profit margins benefited from higher pricing, an improved mix, cost savings, and the acquisition of Blue Buffalo. However, higher input costs remained a drag.

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In comparison, Kellogg’s gross margin fell by 270 basis points to 35.6% during the last reported quarter. Kellogg’s operating margin decreased by 150 basis points, which reflected lower pricing and the addition of Multipro’s operations. J.M. Smucker’s (SJM) gross and operating margin contracted by 100 basis points each. Hershey’s (HSY) gross margins fell by 130 basis points. However, Hershey’s operating margin expanded by 60 basis points, which reflected cost savings.

Outlook

General Mills’ profit margins are expected to benefit from its continued focus on cost savings, higher pricing, and an improved mix. The addition of Blue Buffalo should support the company’s margin growth. However, increased input costs could have a negative impact on the margins.

Management expects its adjusted operating profit to increase 6%–9% in fiscal 2019 due to the company’s increased cost savings and improved pricing and mix.

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