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General Mills Inc. has already raised prices for its products, and says ongoing supply chain disruptions and inflation will drive another pricing shift in the future.
General Mills
GIS,
said in September that it had raised prices for a variety of COVID-related reasons.
Chief Executive Jeff Harmening said the company is not through making adjustments to manage an environment that he called “as dynamic and challenging” as he’s experienced in 27 years in the industry.
“These disruptions are driving down service levels and driving up costs
above and beyond inflation throughout the industry,” he said in prepared earnings remarks released on Tuesday.
“We’ve also taken actions to manage cost and support our profitability, including leveraging our strategic revenue management capability to execute significant pricing actions across our portfolio, resulting in organic price mix stepping up from Q1 to Q2. We expect a further increase in price mix in the back half of the year.”
Among the hurdles the company is facing are higher prices for ingredients, disruptions at facilities, and driver and other labor shortages.
“[W]e may be able to procure ingredients, manufacture the product and have it ready to ship,” said Jonathon Nudi, group president of North American retail, in his comments, offering an example of the different ways the operational process can get interrupted.
“But if our carrier can’t make the scheduled pickup because of a driver shortage, we run the risk of missing our customers’ on-time and in-full deliver window, thus leading to fines and fees.”
General Mills products include Cheerios, Yoplait yogurt, Blue Buffalo pet food, as well as newly-acquired pet food brands from Tyson Foods Inc.
TSN,
General Mills has also announced a number of acquisitions and divestitures in recent months, an effort to position its lineup for growth.
Also: Is Fido finicky? Pet food gets hit by supply-chain disruptions
General Mills reported a fiscal second-quarter profit miss, but raised its sales outlook for the year as the company expects at-home dining trends to continue.
“Organic price/mix grew 5%, a step up from F1Q (Aug-Q) of 2%, and importantly, General Mills expects price/mix to step up once again in F3Q (Feb-Q) as it implements additional pricing to offset incremental inflation,” wrote Arun Sundaram in a CFRA note.
CFRA rates General Mills stock a buy and raised its price target by $4 to $72.
“While these disruptions will likely continue through FY 22 (May), the good news is General Mills’ margins should significantly strengthen once the broader supply chain environment improves.
“General Mills is executing well, gaining market share, and positioning itself for stronger long-term growth.”
The company’s stock is down 4% in Tuesday trading, but has gained 10.7% for the year.
The S&P 500 index
SPX,
has run up 23.2% in 2021.
