GIS General Mills Inc

By Annie Gasparro 

General Mills Inc. said higher food and shipping costs hurt profitability in the latest quarter and will weigh on the food maker's earnings for the year.

Comparable sales rose 1% in the quarter, including a bump in the U.S., as more people bought General Mills products like Nature Valley granola bars and Cheerios cereal. But like its competitors, General Mills paid more for ingredients and said shipping costs in North America were near 20-year highs, dragging adjusted operating margins down 1.2 percentage points to 15.7%.

Chief Executive Jeff Harmening said General Mills may raise prices to reflect the higher costs.

"Our third-quarter operating profit fell well short of our expectations, " he said. "We are moving urgently to address this increasingly dynamic cost inflation environment."

For its fiscal year ending in May, General Mills projects adjusted earnings per share will rise by up to 1%, compared to previous guidance for an increase up to 4%.

Shares fell 10% Wednesday in early trading. General Mills shares have fallen 25% over the past year, while the S&P 500 has risen 16%.

Mr. Harmening, who took over as CEO less than a year ago, said he plans to continue selling off the Minneapolis-based conglomerate's weaker businesses while acquiring new brands with more growth potential.

General Mills in February agreed to buy pet-food maker Blue Buffalo for $8 billion. Mr. Harmening said the deal will give General Mills a foothold in the premium pet food aisle, where sales are growing significantly faster than for products like baking mixes. He intends to expand Blue Buffalo to more retail outlets and to expand the brand with new products like treats.

Those acquisitions come alongside divestitures of older brands like the Green Giant frozen and canned vegetable business that General Mills sold to B&G Foods Inc. in 2015. Wall Street analysts have speculated that Hamburger Helper or Bisquick could be the next brands General Mills sells.

The company has struggled in recent years as customers migrated away from those brands. Yoplait yogurt, meanwhile, was hurt by the rapid expansion of Greek-style yogurt and nondairy alternatives.

Lately, General Mills' brands like Cheerios and Progresso soup have been selling faster in stores than rival brands -- a sign of progress for a company that hasn't seen that kind of success since 2014, according to J.P. Morgan analyst Ken Goldman. He and other analysts questioned whether General Mills can raise prices without losing customers.

Profit for the quarter rose to $941.4 million. Excluding one-time items, adjusted earnings of 79 cents a share topped analysts' expectations of 78 cents, according to FactSet. Revenue rose 2% to $3.88 billion, beating projections of $3.87 billion.

Imani Moise contributed to this article.

Write to Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

March 21, 2018 09:50 ET (13:50 GMT)

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