Tuesday, December 21, 2021

Food maker General Mills ($GIS) filed its latest earnings release today. The good news is that revenues rose more than 6 percent from the year-earlier period.

The bad news, however, is that operating profit fell 13 percent, largely because of “significant input cost inflation.”

Calcbench has been keeping tabs lately on the cost of goods sold, supply chain bottlenecks, and other inflationary pressures, so General Mills caught our attention. The company makes Cheerios cereal, Betty Crocker cake mix, Green Giant vegetables, and lots more. That requires a lot of inputs, and they’re getting more expensive.

The three headline numbers:

  • Revenue increased $5.02 billion, up 6.4 percent from $4.72 billion one year ago. (Organic revenue rose 5 percent.)
  • Operating profit was $800.1 million, down 13 percent from $916.6 million.
  • Net income attributable to General Mills was $597.2 million, down 13.2 percent from $688.8 million.

Figure 1, below, shows the overall income statement included in the release this morning.

As always, however, the more interesting details about specific operating segments and larger market trends were tucked away further down the earnings release. For example…

  • Revenue for the North America retail segment (that is, the stuff you buy in the supermarket) rose 2 percent to $2.98 billion. On the other hand, the segment’s operating profit fell 7 percent to $649 million, largely due to (wait for it…)  higher input costs. Then again, some of that pressure was offset by “favorable net price realization” — except, that’s a fancy way to say “keeping list prices high,” and those higher prices can feed into inflation at the consumer level. Hmmm.
  • Revenue for the Convenience Stores & Food Services segment rose 23 percent to $541 million. That is somewhat good news, because this segment includes sales to schools, restaurants, hotels, and other businesses; and higher revenue means more of those businesses are open again. In this segment operating profit rose too, driven partly by higher volume and partly by favorable net price realization.

And we’d be remiss if we didn’t flag some troubling talk in General Mills’ outlook for the first six months of 2022 (which are the third and fourth quarters of the company’s fiscal year).

Adjusted operating profit — OK, that’s a non-GAAP metric, but we’ll allow it for now — is expected to decline 1 to 4 percent, reflecting “significantly higher input costs than originally expected,” among other factors.

General Mills goes on to say (emphasis added by us), “For the full year, the company now anticipates cost of goods sold headwinds will be approximately $500 million higher than what was assumed in its initial fiscal 2022 outlook, inclusive of higher input cost inflation, which is now expected to be 8 to 9 percent, as well as elevated costs related to supply chain disruptions.”

So, the birds you see flying over General Mills’ headquarters in Minneapolis are inflation hawks. Adjust your macro-economic analyses of the upcoming year accordingly, before they poop all over the models we all thought were fine six months ago.

By the way, all this earnings release data hit Calcbench databases by 7:06 a.m. this morning. That’s plenty of time before the market open; if you use our Excel Add-In for press release data, you can have the data at your fingertips while your Cheerios are still crunchy.


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