Thursday, September 20, 2007

General Mills' Sweet Cereal Profit Surprise

Giant food company General Mills Inc. released its quarterly profit report Wednesday that included a special little surprise in the cereal box: first-quarter profit rose 8 percent.

According to the company, Chairman and Chief Executive Officer Steve Sanger said, “This represents a very good start to the year. Our continuing growth reflects broad-based sales momentum, and even stronger operating profit growth despite challenging input-cost inflation and increased consumer marketing investment to build our brands”

Business must be good indeed. Charge more and increase profits.

What we find interesting is how media companies continue to harp on the rising price of grains (like this report from blaming all increases on grain prices, but ignoring rising fuel and marketing costs. Even when companies tell them what's going on and some simple math proves it.

Something just doesn't add up. A bushel of corn, even at a higher price of $3.50 a bushel compared to $2.50, doesn't affect the input cost greatly per box of cereal for a consumer. A bushel of corn is 56 POUNDS. Doing the math shows that 1 pound of corn and that $1.00 increase means less than 2 cents per pound can be attributed to higher grain costs. And most cereal boxes have a lot less than 1 pound of cereal in a box and charge MORE than the cost to buy 56 POUNDS of corn!

So hefty consumer price increases HAVE to be coming from somewhere else like increased profits, marketing, fuel and labor costs.

Source: General Mills, Inc.

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