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Thread: General Mills on 'Inflation in the Pipeline'

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    Default General Mills on 'Inflation in the Pipeline'

    from


    (snip)General Mills came out Wednesday with their Q3 earnings, and what do you suppose was one of the top points they wanted to make to their investors? Just that they were experiencing significantly higher input costs year-over-year.

    As a matter of fact, they say that YOY inflation input costs were actually higher by 2% 3% 5% 8% ...

    10%-11%

    So is it deflationary for the consumer if the 3rd biggest food company in America is experiencing double digit inflation?

    But then again what do I know, I'm just a contributor to a blog. And I don't even have a Phd.(snip)






    The major take-away from this official statement relates to a point already raised in other Dollar Den threads. That point is that commodity price increases which have already occurred in US dollar terms are usually not immediately passed on to consumers. With the exception of near-commodity items like gasoline, most commodity price increases first hit industries who process those commodities as an 'input' towards the production of some other product or service. And those industries are simply unable to recoup their higher commodity price based 'input' costs due to competitive market pressures. This in turn translates into lower profitability for those industries, lower stock values and dividends for their stockholders, lower / no expansion or job creation etc. Based on this official statement, General Mills has now reached that point. Undoubtedly, many other businesses and industries, from pizza parlors to automakers, are also experiencing the same rising 'input' costs thus profit margin reduction.

    Ultimately, profit margin reduction due to rising commodity prices will force these businesses and industries to either increase retail prices ( and hope this doesn't cause a major drop in market share ), or reduce non-commodity based 'input' costs in other ways ( for example, by trading expensive US labor for cheap foreign labor ) to offset commodity based 'input' cost increases, or to go out of business due to lack of a 'sustainable' profitability level. But, one way or another, this will translate into higher US dollar denominated retail price levels or additional losses of US jobs, or both.

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    Default Re: General Mills on 'Inflation in the Pipeline'

    News from the Dallas Regional FED also indicates that 'input' price inflation and 'margin compression' are not isolated to commodity intensive industries like General Mills either ... from


    (snip)"The Dallas Fed Manufacturing Outlook just came with its largest miss of expectations in 9 months - and biggest drop in 7 months.. A 10.8 print vs expectations of 17.0 dropped the index back to its lowest since December and keeps the 'good is good but bad is better' dream alive we assume and markets are entirely unfazed. The 'hope' sub-index printed higher which accounts for some of the reaction but we note that New Orders went negative, Average Workweek plummeted to its lowest in at least six months (and the number of employees also fell), and Prices Paid jumped but Prices Received dropped for the first time in three months (more margin pressure). This makes 14 of the last 16 macro data prints in the US a miss - but Ben is here to save us from considering the harsh reality of our quagmire.

    The Dallas Fed Manufacturing Outlook just came with its largest miss of expectations in 9 months - and biggest drop in 7 months.. A 10.8 print vs expectations of 17.0 dropped the index back to its lowest since December and keeps the 'good is good but bad is better' dream alive we assume and markets are entirely unfazed. The 'hope' sub-index printed higher which accounts for some of the reaction but we note that New Orders went negative, Average Workweek plummeted to its lowest in at least six months (and the number of employees also fell), and Prices Paid jumped but Prices Received dropped for the first time in three months (more margin pressure). This makes 14 of the last 16 macro data prints in the US a miss - but Ben is here to save us from considering the harsh reality of our quagmire.

    The Dallas Fed data dropped the most in 7 months ... New Orders went negative ... And the difference between prices received and prices paid dropped to its lowest in 10 months (snip)




    Obviously, a shrinking difference between prices received and prices paid translates into a shrinking profit margin !!!
    Last edited by Melonie; 03-26-2012 at 08:57 AM.

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