NEW YORK (Reuters) - General Mills Inc <GIS.N> on Wednesday posted a higher-than-expected quarterly profit as cost-cutting measures and higher sales helped offset soaring prices for wheat and other commodities, sending its shares up almost 3 percent.
By Kristina Cooke
NEW YORK (Reuters) - General Mills Inc <GIS.N> on Wednesday posted a higher-than-expected quarterly profit as cost-cutting measures and higher sales helped offset soaring prices for wheat and other commodities, sending its shares up almost 3 percent.
The maker of Cheerios cereal, Progresso soup and Yoplait yogurt stood by its forecast for fiscal year 2008, excluding special items, which it had raised in February. But the company said it expects to see an acceleration in cost inflation in the fourth quarter.
Like most food companies, General Mills has been hit by commodity costs that have risen well above expectations, and has passed on some of those costs to the consumer. One way has been to reduce the size of its cereal boxes, effectively raising the price per ounce.
!ADVERTISEMENT!"I know there's concern about food price inflation and the potential impact on volume and sales. We are going to continue to watch this closely, but we are encouraged by the strong demand we are seeing for our products," Chief Executive Officer Ken Powell said on a conference call.
Powell said product innovation as well as a 13 percent increase in marketing spending was driving strong growth.
Net profit rose 61 percent to $430.1 million, or $1.23 a share, in the fiscal third quarter that ended February 24, compared with $267.5 million, or 74 cents share, a year earlier.
The net profit was boosted by gains from commodity hedging and a favorable court decision on a tax matter. Excluding those and other one-time items, earnings were 87 cents a share. Analysts, on average, had expected 79 cents a share, according to Reuters Estimates.
"The biggest standout for me is just how strong their sales momentum is," said Edward Jones' analyst Matt Arnold.
"At the end of the day a lot of it is coming down to pricing and the fact they are raising their prices along with all their competitors," Arnold said, "but the other side of it is volume, and that's down to their product innovation and product relevance."
He said the company's strong performance was likely to be the exception rather than the rule in the food industry.
Net sales rose 11.5 percent to $3.4 billion, fueled by a 6 percent jump in pound volume growth, even as prices rose. Analysts had expected revenue of $3.2 billion, according to Reuters Estimates. The company said it would continue to invest in consumer marketing to drive growth.
Net sales at U.S. retail operations grew 9 percent to $2.3 billion, while a weaker U.S. dollar boosted sales at the companies' international businesses for the third quarter, which increased 20 percent to $613 million.
General Mills expects full-year profit, excluding items, of $3.45 to $3.47 a share. Analysts expect profit of $3.47 for the year, according to Reuters Estimates.
For fiscal year 2009, General Mills expects continued good top-line growth and targets a mid-single digit increase in net sales. The company said it was actively planning for another year of rising input costs.
Its shares rose 2.9 percent to $59.89 on the New York Stock Exchange in midday trading.
(Editing by Maureen Bavdek)
