Why General Mills, Inc. Stock Got Dumped Today

What happened

Shares of General Mills, Inc. (NYSE: GIS) were tumbling today after the diversified food-maker posted third-quarter earnings and lowered its full-year forecast due to higher freight and commodity costs. As a result, the Cheerios-maker was down 9.9% as of 10:52 a.m. EDT.

So what

The parent of brands including Yoplait, Nature Valley, Haagen-Dazs, and Annie's said overall sales increased 2.3% in the period to $3.88 billion, which topped estimates of $3.78 billion. Stripping out the effect of acquisitions and divestitures, revenue increased 1% in the quarter.

Adjusted gross margin was down 250 basis points to 32.5% due to higher input costs and increased freight and logistics expenses. Adjusted operating profit was down 120 basis points to 15.7% and operating profit declined 6% in constant currency to $628 million. However, adjusted earnings per share rose due to a lower tax rate and share count, increasing from from $0.73 to $0.79, which beat estimates by a penny.

Still, investors were more concerned with eroding margins and the weak forecast. CEO Jeff Harmening called the bottom-line results "disappointing" and said the broader industry was also experiencing the same headwinds.

Now what

Management said it now expects constant-currency operating profit to be down 5% to 6% for the year, compared to a previous forecast of a decline of 1% to flat. It also sees adjusted earnings per share up 0% to 1% from $3.08 a year ago, compared to a prior range of a 3% to 4% increase.

Like many legacy food companies, General Mills continues to struggle with consumer shifts to fresher, organic foods and away from canned and pre-packaged foods. The company is expected to close on an $8 billion acquisition of Blue Buffalo Pet Products (NASDAQ: BUFF), an expensive move to pivot into a growing category. Still, given the increasing costs and consumer tastes, the stock is likely to continue to struggle.

10 stocks we like better than General MillsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and General Mills wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool is short shares of General Mills. The Motley Fool has a disclosure policy.