Trucker Shortage Hits General Mills

Shipping costs taking a bite from General Mills profit margins. ( MGN )

(Bloomberg) -- General Mills Inc. suffered the worst plunge since mid-2015 after shipping costs and other expenses squeezed profit margins to their thinnest point in years. 

The maker of Cheerios cereal and Progresso soup lowered its full-year profit forecast, citing higher freight and commodity expenses. Operational costs have also risen as the company grapples with an industrywide grocery price war.

General Mills is the latest company to cite higher shipping costs as a major headwind in 2018, joining Hershey Co., Tyson Foods Inc., Kellogg Co. and others. Higher fuel costs and a trucker shortage have driven up expenses across industries. Inc., the e-commerce titan, has been raising fees on some of its suppliers in a bid to protect margins, while Walmart Inc. has said that higher prices to move goods has weighed on margins.

To offset some of the costs, General Mills will look to increase prices on store shelves, but that could be tricky amid fierce grocery competition that has food retailers scrambling to lock in shoppers.

“I’m very skeptical that consumer or retailers will accept higher prices in this environment,” said Ken Shea, an analyst at Bloomberg Intelligence.

Shares of General Mills fell as much as 10 percent to $44.79 in New York Wednesday, the biggest intraday slide since August 2015. The stock had already declined 16 percent this year through the close on Tuesday. Shares of other packaged-food companies also fell, including Kellogg, Conagra Brands Inc., Campbell Soup Co. and JM Smucker Co.

General Mills cut its full-year outlook for earnings per share, excluding some items, to flat to up 1 percent. It had previously forecast a gain of at least 3 percent, based on currency staying constant.

Freight costs neared a 20-year high in February, General Mills said. The company has been forced into the spot market for about 20 percent of its shipments, compared with a historical average of about 5 percent. The costs on those orders can be as much as 60 percent higher.

The company blamed those increases and others for the 2.2 percentage-point drop in its gross margin to 32.3 percent in the third quarter, which ended Feb. 25.

The shipping issue has dogged packaged-food companies, and Chief Executive Officer Jeff Harmening said the trucker shortage and new government regulations were mainly to blame for the higher costs. That will increase pressure to control expenses and maintain sales momentum. In a bright spot, General Mills reported a second straight quarter of revenue growth, the first time it’s had back-to-back gains in almost five years.

“Turning the top line is a huge task,” he said in an interview. “We’ve made our own success on sales, and we’re looking to make our success when it comes to the cost environment.”


Copyright 2018, Bloomberg News