General Mills CEO on food inflation: we have the tools we need to battle it

Yahoo Finance's Brian Sozzi speaks with General Mills CEO Jeff Harmening about the company's latest earnings report, industry trends, and outlook.

Video transcript

BRIAN SOZZI: Earnings out of General Mills this week showed it continues to see tailwinds in its business from people eating more at home during the pandemic. But like others in big food of late, cost pressures have begun to nip away at the cereal and snack giant's bottom line.

Joining us now is General Mills chairman and CEO Jeff Harmening. Jeff, always good to speak with you. Thanks for taking some time this morning. So sales in your business going really well. I'm looking at the meals and baking business in the US, sales up 15%. That's good. Cereal business up 9%. But you did highlight this week you are seeing some inflation. Where are you seeing it?

JEFF HARMENING: So you're right. Thanks. It's good to be on the program.

And you're right. We are seeing great growth across our North American business in particular, including our pet business. But we're also seeing rising cost pressures and increased cost to serve. And the inflation that we're starting to see is broad-based. We see it in grains. We see it in logistics not only here in the US, but also globally.

And fortunately, we have good productivity programs and are looking to put some pricing in place. And so we have the tools we need in order to battle it. But we are starting to see inflation, as are most of our competitors.

JULIE HYMAN: Jeff, it's Julie here. On a related note, we've talked a lot about the sort of port congestion that's been going on, with the tanker stuck in the Suez as sort of a prime example, or container ship. What about not just cost pressures as a result of that congestion, but are you guys having any trouble getting stuff where it needs to be?

JEFF HARMENING: In large part, no. We're not having trouble getting stuff where it needs to be. At the last week of February, we had a couple of days of short-term challenges with all the winter storms in Texas up through Tennessee. But bigger picture, no. For us, getting things where it needs to be is not the problem. It's really a matter of we see increased price pressure on logistics due to shortages of labor and more packages being shipped. But no, we're not having trouble getting the things that we need to get.

BRIAN SOZZI: Amidst your earnings this week, Jeff, you also announced a transaction. So you are buying-- well, unloading a part of your Yoplait yogurt business but also gaining a part of it. Take us through that transaction. And are you done reshaping your portfolio?

JEFF HARMENING: So we announced earlier this week that we have a proposal in place to sell the European part of our yogurt business to Sodial who are our current joint venture partner, while at the same time purchasing 100% ownership of the Canadian yogurt business as well as reducing royalties on our US and Canadian business.

And the reason we're doing that, really, is to increase our growth profile both in Europe and for the company in total. And particularly Europe is important because it will allow us to focus on our big, global brands, businesses such as Old El Paso and Haagen-Dazs ice cream, and Nature Valley in the bars category, where we've got really good margins and really good growth prospects.

So it's a transaction that will enhance the growth and margin profile of the company, while also allowing us to increase our focus on things where we have greater growth potential.

JULIE HYMAN: Jeff, apologies, I want to come back to something that you said in the prior answer before talking about that deal. And that's labor cost pressures, which you mentioned in passing. And I key on that because economists who we've spoken to have said, we're not going to see more substantial inflation, really, like the kind the Fed watches, until we see inflation in wages. Are you guys raising wages now? Are you planning to raise wages over the course of the year? And you mentioned-- maybe are you having a little trouble finding people right now?

JEFF HARMENING: Well, the cost pressure I really talked about was in specifically with regard to logistics because during the pandemic, it was hard to train new drivers. At the same time, e-commerce has really grown. And so that's put pressure on the availability of logistics relative to the demand.

And we've also seen growth in our commodity prices, things like grains in particular. So it really wasn't with regard to our labor organization. Our employees are well-paid already. So the inflation isn't necessarily targeted there, more of the logistics and input costs.

BRIAN SOZZI: Jeff, I remember ahead of this interview, I was thinking back to an investor day General Mills did. And before you were CEO, you were in there. We were both at the New York Stock Exchange. I never thought I'd come to the day where I would be asking about shrimp tails inside of Cinnamon Toast Crunch. But there's a lot of social media uproar on that. What's the latest? Is this a General Mills-related issue? Is this a consumer issue? What can you tell us?

JEFF HARMENING: Well, most importantly, I can tell you there's been a lot written and said about this particular topic. Our sole focus is on making sure we get to the bottom of what exactly has happened. And so that's where we're in the process of doing.

I can say with a good deal of confidence that whatever has transpired didn't really take place at our manufacturing facility just due to the nature of the facility itself and the evidence we've gathered so far. We're still trying to piece together exactly what has happened. And importantly, we're working with the consumer to make sure we get a hold of the product and all the packaging so we can determine what exactly has happened.

And so even though we're confident that whatever happened didn't take place at our facility, that doesn't mean we have exact answers on exactly what has happened. And we're working with the consumer in order to do that.

BRIAN SOZZI: Good to hear. And we'll leave it there. General Mills chairman and CEO Jeff Harmening, stay safe. We'll talk to you soon.