Truck driver shortage squeezes General Mills profits

General Mills shares tumbled on Wednesday as the processed food giant warned its profits this year would be squeezed by cost pressures including a historic shortage of truck drivers. The woes of the maker of Cheerios cereal have become common for consumer goods companies. With the US economy heating up, freight, shipping, and commodities costs are rising. But the discounting strategies of retailing powers Amazon and Wal-Mart are making it difficult for goods makers to raise prices. General Mills said it was slashing its earnings forecast for the year as a result. Jeff Harmening, chief executive, said he was “disappointed” and promised the company is “moving urgently to address this increasingly dynamic cost inflation environment”. The company’s response includes changing its modes of transportation and increasing the number of freight carriers it works with, but the measures are not expected to meaningfully improve profits until the 2019 fiscal year. “Like the broader industry, we’re seeing sharp increases in input costs, including inflation in freight and commodities,” Mr Harmening said. General Mills now expects its adjusted earnings in 2018 to rise up to 1 per cent for the fiscal year, a downgrade from its previous guidance for a rise of up to 4 per cent. In the US, rates to hire long-distance trucks have soared as truck utilisation has reached 100 per cent and an improving job market has made it hard to find drivers. The producer price index for truck transportation is up 5.3 per cent year on year, and some carriers are offering $50,000 bonuses for new drivers. The makers of snacks and packaged food are also paying more for ingredients. Shares in General Mills fell 9.7 per cent in morning trading to their lowest level in more than five years. The stock of the company based in Minneapolis has dropped more than 20 per cent in the past year. In the three months to the end of February, gross margins fell 2.2 percentage points to 32.3 per cent, which the company attributes to freight and logistics costs, and commodity inflation. Sales in the quarter climbed 2.3 per cent to $3.88bn, outpacing consensus forecasts for $3.78bn. Adjusted earnings per share were 79 cent. Analysts were looking for 78 cents. Last month, General Mills announced it would acquire luxury pet foodmaker Blue Buffalo, in an $8bn deal RBC analysts called “surprising and pricey”. The company is trying to pivot away from products like cereal, which are suffering from slow or declining growth, and towards faster-growing items, like natural pet treats. Companies ranging from Hershey to Clorox have also felt the pinch from rising commodities and logistics costs in recent months.

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