GIS General Mills Inc

By Imani Moise 

General Mills Inc. slashed its profit outlook for the current fiscal year as the cereal and yogurt maker prepares to address hefty supply-chain costs.

The maker of Cheerios and Hamburger Helper now expects constant-currency operating profit to drop 5% to 6%, compared with its previous expectation of being flat to down 1%. The company still expects organic net sales to be in line with the previous year.

Shares dropped 10% to $45.15 during premarket trading as the downbeat outlook overshadowed higher-than-expected sales and profit for the company's third quarter.

"Our primary goal this year has been to strengthen our top-line performance while maintaining our efficiency," Chief Executive Jeff Harmening said in prepared remarks. "I'm disappointed in our results on the bottom line."

General Mills's cost of sales rose 5.7%, outpacing revenue growth of 2.3%. The company attributed much of the rising costs to higher freight rates and commodity prices.

The Minneapolis-based food conglomerate has launched initiatives to mitigate the inflation, including increasing its number of freight carriers and using different modes of transportation.

The company also reiterated plans to accelerate growth in key businesses such as Häagen-Dazs ice cream and natural and organic foods while shedding slower-growth businesses. Slowing sales in the packaged-food industry have sparked a flurry of cost-cutting and deal-making in recent years. Last month the company reached a deal to buy Blue Buffalo Pet Products Inc. for about $8 billion to grab a piece of the growing natural pet-food market.

Sales in its North American retail business rose 1% in its latest quarter as growth in domestic snacks and baking products offset continued declines in cereal and yogurt sales.

Overall for the quarter, the company reported a profit of $941.4 million, or $1.62 a share, up from $357.8 million, or 61 cents a share, a year earlier. Excluding one-time items and special charges such as a $504 million benefit related to recent tax law changes, General Mills's adjusted per-share earnings rose to 79 cents from 72 cents a year earlier. Sales rose 2.3% to $3.88 billion with organic sales rising 1%.

Analysts polled by Thomson Reuters had forecast adjusted earnings of 78 cents a share on $3.78 billion in sales.

General Mills shares have fallen 17% over the past year through Tuesday's close, while the S&P 500 has risen 14%.

Write to Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

March 21, 2018 09:04 ET (13:04 GMT)

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