Wednesday, December 19, 2007

General Mills Needs To Explain Inflation Concerns

General Mills (GIS) reported its Q2 08 results. Through the first six months of 2008 net sales increased 7 percent to $6.78 billion. Segment operating profits grew 4 percent to $1.29 billion. Net earnings through six months grew 4 percent to $679 million.

The company which is clearly heavily influenced by food commodity prices is starting to make some noises about inflation. Read this quote from Chief Executive Officer Ken Powell "segment operating profits were up 4 percent through the first six months despite significant input cost inflation..."

Later on comments made under Outlook included this quote "The company expects input cost inflation will be higher in the second half than in the first half, and that full-year inflation will be greater than originally estimated. However, above-plan results through the first half, pricing and increased productivity savings are expected to offset this cost pressure."

The company is reporting results as if it is entirely a consumer products company and occasionally looking over its shoulder and pointing to inflation as a possible problem. Discussion is presented in a marketing format such as price points, discounts, product recalls and revenue growth.

The investor needs to consider how inflation will start to manage this company's finances. It would be helpful if management would be clearer on how they are managing these costs.