Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

General Mills, Inc. Stock Plunged 11% in March -- Here's Why You Shouldn't Worry.

By Travis Hoium - Apr 5, 2018 at 12:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A long-term view makes the most recent quarter a little less concerning for General Mills.

What happened 

Shares of food giant General Mills, Inc. ( GIS 0.33% ) dropped 10.9% in March, according to data provided by S&P Global Market Intelligence, after reporting worse than expected profits in the fiscal third quarter of 2018. Costs that are largely out of General Mills' hands drove the weaker than expected results, but that isn't much consolation for investors right now.

So what 

Third-quarter results announced March 21, 2018, showed a 2% increase in sales to $3.88 billion and a 9% increase in operating profit to $593 million. Net income was also up 163% to $941 million, or $1.62 per share, primarily because of the Tax Cuts and Jobs Act passed in December.

Cereal in a bowl with milk jugs in the background.

Image source: Getty Images.

While results seem positive on the surface, they didn't hit management's own expectations. In the second-quarter earnings release, management said operating profit was expected to be up double digits in the second half of the year, hopefully offsetting an 11% decline in operating profit in the first half of the year. That led to a reduction in operating profit guidance from flat to up 1% to new expectations of a 5% to 6% decline in operating profit for the fiscal year.

Now what 

If you dig into the numbers, General Mills is doing well on the top line, growing sales organically at 1% in the fiscal third quarter, which isn't bad in a competitive food environment. But the company faced headwinds like rising raw material costs and higher shipping costs that hurt operating profit more than expected. These costs may be out of management's control, but that doesn't mean it didn't cause the stock to slide last month.

Long term, I would worry more about General Mills' top line than the ups and downs of commodity prices to its bottom line. If the company can maintain organic growth, bolstered by the recently announced acquisition of Blue Buffalo Pet Products, it should be a solid stock long term, and stock volatility from commodity prices is just part of the food business today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Mills, Inc. Stock Quote
General Mills, Inc.
$64.44 (0.33%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.