General Mills profit below view

NEW YORK Wed Mar 18, 2009 1:11pm EDT

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NEW YORK (Reuters) - General Mills Inc (GIS.N) posted a lower-than-expected quarterly profit on Wednesday, hurt by the effect of the stronger dollar and high costs, and forecast disappointing full-year earnings, sending its shares down as much as 10 percent to a three-year low.

The food maker's executives briefly touched on its fiscal 2010 outlook during a conference call, saying it "would look to be ahead" of the $4.05 a share earnings goal set earlier.

But no specific details were offered, adding to investors' fears that 2010 profit may fall short of analysts' expectations of $4.25 per share, according to Reuters Estimates.

"Clearly, that's going to be below where everyone is at," said Edward Jones analyst Jack Russo, adding that the vague outlook was partly a reason for General Mills' stock decline.

Investors were also punishing it for the disappointing quarterly results, even though the reasons -- a stronger dollar, high commodity costs and weak sales in its food service unit -- were not a big surprise, Russo said.

"But that's what you have right now in the market. If you miss, you pay for it dearly," he added.

Earnings in the third quarter that ended February 22 fell to $288.9 million, or 85 cents a share, from $430.1 million or $1.23 a share, a year earlier.

Its profit was 79 cents a share, excluding one-time items like changes in the market value of some commodity hedges, a gain from insurance settlement and tax expense. Analysts on average were expecting 87 cents on that basis, which would have been flat with a year earlier, according to Reuters Estimates.

Sales for the maker of Progresso soup, Cheerios cereal and Yoplait yogurt rose 4 percent to $3.54 billion, benefiting as consumers ate more meals at home to save money.

Sales rose 5 percent in the U.S. retail segment's meals unit, which sells Green Giant frozen vegetables and Helper dinner mixes while Pillsbury division sales were up 15 percent, helped by demand for frozen appetizers and refrigerated dough items.

Sales fell 6 percent in its bakeries and food service segment, which caters to restaurants and convenience stores.

"The trend of consumers eating more meals at home is challenging for this division," Chief Executive Ken Powell said in a conference call.

Net international sales fell 5 percent, and U.S. retail sales were up 8 percent. The stronger dollar hurt sales by 3 percentage points, General Mills said.

OUTLOOK

General Mills raised its full-year outlook, citing strong sales in the first nine months and lower input costs in the current quarter. The company has said it expects energy, ingredient and supply chain costs to be up 9 percent in the current fiscal year.

Although commodity costs have fallen from highs seen last year, companies argue that they are still up year over year. Some companies also entered contracts to buy commodities at those higher prices, and some of those contracts do not end until later this year.

But General Mills' fourth-quarter input costs will be "well below" the company's estimated rate for the full year, Powell said in a statement. Results will also benefit from an extra week of sales, he added.

General Mills now expects to earn $3.87 to $3.89 a share, excluding some items for the fiscal year ending in May. It had previously forecast $3.83 to $3.87 on that basis. Analysts expect $3.93 a share.

For fiscal year 2010, General Mills "would look to be ahead" of its earnings goal of $4.05 a share, which it has already said earlier, Powell said.

The company will unveil new items across its brands later this year, he said in an interview, as it tries to entice shoppers to choose its brands in a deeply competitive market.

Its shares were down $4.99, or 9.3 percent, at $48.67 on the New York Stock Exchange after falling as low as $48.45 earlier in the session.

(Reporting by Aarthi Sivaraman in New York; additional reporting by Brad Dorfman in Chicago; Editing by Derek Caney and Lisa Von Ahn)

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