What Affected General Mills’ Margins in Q4

Margins contract

In fiscal 2019’s fourth quarter, General Mills’ (GIS) profit margins failed to impress as they were up against a tough YoY (year-over-year) comparison. After expanding YoY for two quarters, General Mills’ adjusted gross and operating margins contracted in the fourth quarter.

General Mills’ profit margin benefited from its product mix, higher pricing, and acquisition of Blue Buffalo. However, increased product costs (including inflated input costs), weak volumes, and higher supply-chain costs pressured its profit margin.

What Affected General Mills’ Margins in Q4

General Mills’ adjusted gross margin contracted by 50 basis points to 35.3%, and narrowed its adjusted operating margin by 50 basis points to 17.3%. That contraction was partially offset by a lower selling, general, and administrative expense rate.

In comparison, J.M. Smucker’s adjusted gross margin was flat in its last quarter, boosted by improved volumes and input cost trends and offset by lower net pricing. Meanwhile, its adjusted operating margin contracted by 120 basis points due to higher expenses.

In Campbell Soup’s (CPB)s last reported quarter, input cost inflation and an unfavorable mix impacted its margins. Meanwhile, Hershey’s (HSY) and Mondelēz International’s (MDLZ) margins were strong in their last reported quarters, driven by higher pricing, improved volumes, and productivity savings.

Outlook

We expect General Mills’ profit margin to continue to benefit from its focus on containing costs, higher net pricing, and a favorable mix. However, increased product costs could continue to hurt. The company expects its constant-currency adjusted operating profit to grow 2%–4% in fiscal 2020.