General Mills is the latest company to face a big inflation hit

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General Mills Inc. Lucky Charms brand cereal.

Daniel Acker | Bloomberg | Getty Images

General Mills is finding out that inflation isn’t exactly a Lucky Charm.

The maker of the “magically delicious” cereal, along with a slew of other food products, told investors Wednesday that the company expects to see inflation running at a lofty 7% this year.

That’s considerably above the expectations of many investors and economists and another sign that, at least in some areas, cost pressures will keep building.

“While I don’t want to get too specific at the segment level, what I will tell you is all of our segments are experiencing higher inflation,” General Mills chief financial officer Kofi Bruce told analysts on an earnings conference call Wednesday.

Company officials said they expect to be able to manage costs this year, listing several different strategies they can employ.

Among those Bruce listed are “strategic revenue management, both list pricing, price pack optimization, trade optimization, all of those things to yield us enough to cover our inflation expectations.”

For consumers, that could mean higher prices and less contents in packages, both popular means of managing inflation.

Bruce and company CEO Jeff Harmening did not go into details about pricing, with the latter stressing the company’s “agility” when it comes to such issues.

For the quarter, General Mills reported a profit of 91 cents per share, 6 cents ahead of analyst estimates. Revenue came in well above expectations at $4.52 billion compared to the Street’s view of $2.02 billion. However, shares were off about 0.9% in afternoon trading.

Wall Street largely has bought into the Federal Reserve’s insistence that the current spate of inflation is transitory, though even some central bank officials have conceded lately that the price pressures are more intense and durable than they had figured.

Bleakley Advisory Group chief investment officer Peter Boockvar pointed to the General Mills situation as a cautionary signal about inflation.

“Higher food prices are of course a major input for General Mills and if you didn’t see what has happened to row crops this week, corn is up 15% in 4 days (yesterday, less than expected acreage plans were announced by the USDA) to a 6 week high and is approaching an 8 (year) high,” Boockvar said in a note Thursday. “Soybean prices are up 10% this week after the USDA also said acres committed to soybeans was also below expectations.”

Indeed, commodity prices have been on a consistent tear lately, the stunning slump in lumber prices notwithstanding.

The Invesco DB Commodity Index Tracking ETF is up more than 31% in 2021 and around its highest levels in more than six years.

That increase has translated directly to households, with the consumer price index up 5% year over in May for the biggest increase in 13 years.

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