General Mills Inc. Lucky Charms brand cereal.
Daniel Acker | Bloomberg | Getty Images
General Mills discovers that inflation is not exactly a lucky charm.
The maker of “magically delicious” cereal, along with many other food products, told investors on Wednesday that the company expects inflation to rise to 7% this year.
This is significantly above the expectations of many investors and economists and another sign that, at least in some areas, cost pressures will continue to mount.
âWhile I don’t want to be too specific at the segment level, what I’m going to tell you is that all of our segments are experiencing higher inflation,â General Mills CFO Kofi Bruce told reporters on Wednesday. analysts on an earnings conference call.
Company officials have said they expect to be able to manage costs this year, listing several different strategies they can employ.
Among those listed by Bruce are “strategic revenue management, both pricing, price optimization, trade optimization, all of those things that earn us enough money to cover our inflation expectations.”
For consumers, that could mean higher prices and less content in packages, two popular ways to deal with inflation.
Bruce and company CEO Jeff Harmening did not give details on the awards, the latter pointing to the company’s “agility” in the face of such issues.
For the quarter, General Mills reported earnings of 91 cents per share, 6 cents ahead of analyst estimates. Revenue exceeded expectations at $ 4.52 billion, compared to Street’s $ 2.02 billion. However, stocks lost around 0.9% in afternoon trading.
Wall Street has largely endorsed the Federal Reserve’s insistence that the current wave of inflation is transient, although even some central bank officials have recently acknowledged that price pressures are more intense and lasting than ‘they never imagined.
Peter Boockvar, chief investment officer of Bleakley Advisory Group, called General Mills’ situation a warning against inflation.
“Rising food prices are of course a big factor for General Mills and if you haven’t seen what happened to row crops this week, maize rose 15% in 4 days (yesterday lower than forecast acreage plans were announced by the USDA) at a 6-week high and is approaching an 8 (year) high, “Boockvar said in a note Thursday. “Soybean prices rose 10% this week after the USDA also said soybean acreage was also lower than expected.”
Indeed, commodity prices have experienced a steady tear in recent times, despite the steep drop in lumber prices.
The Invesco DB Commodity Index Tracking ETF rose by over 31% in 2021 and is near its highest levels in over six years.
This increase was passed directly on to households, with the consumer price index rising 5% in May for the largest increase in 13 years.
Become a smarter investor with CNBC Pro.
Get stock picks, analyst calls, exclusive interviews, and access to CNBC TV.
Sign up to start a free trial today.