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General Mills, Inc. (GIS), Kellogg Company (K) & Post Holdings Inc (POST): How Cereal Companies Will Weather Cost Increases

Kellogg Company (NYSE:K)As major cereal brands announced good news in recent earnings reports, it was hard not to notice the cautious optimism in each company’s words. Rising food costs had General Mills, Inc. (NYSE:GIS) warning investors that its future quarter may not be as fruitful, while competitor Kellogg Company (NYSE:K) showed results that already reflected the profit dip.

Promising quarter

For General Mills, Inc. (NYSE:GIS), the rising cost of grain and other ingredients due to heat and drought had little impact on its past quarter’s earnings. As shareholders watched, the maker of such popular cereals as Cheerios, Wheaties, and Cinnamon Toast Crunch announced a 13% increase in earnings compared to the same quarter in 2012. That brought the company’s total earnings for the quarter to $366 million, with revenue rising 8% to $4.41 billion.

But General Mills is quick to point out that part of the increase is due to the introduction of new products, including Yoplait Canada. During the earnings announcement, the company said the increase in costs will be manageable, and its taking measures to counter these expenses.

Part of General Mills, Inc. (NYSE:GIS)’ counteractive measures include cutting costs throughout the organization. Instead of raising prices, (to pass costs on to customers), General Mills has increased in-store promotions and actually reduced prices to encourage purchases. But for General Mills, cereal is just a small part of operations. General Mills, Inc. (NYSE:GIS)’ snacks, soups, and baking products have all increased enough to offset its cereal loss.

Hold the corn flakes

Kellogg Company (NYSE:K) wasn’t quite as fortunate. Since the manufacturer’s full suite of profits consist solely of food items, rising food costs have a much more widespread impact on the company’s bottom line. As a result, it saw a 2% decrease in income but a 12% increase in sales.

During the earnings announcement, the company’s president and CEO stressed that it was on track to meet its guidance for the year. However, costs in the first quarter jumped a full 80%, which makes you wonder if it will have a hard time controlling costs the rest of the year. Unlike GM, however, Kellogg stated it had no plans to reduce prices or implement new promotions in the near future.

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