General Mills posts profit beat, keeps forecast
NEW YORK (Reuters) - U.S. packaged foods maker General Mills Inc (GIS.N) reported quarterly profit that was slightly better than expected and affirmed its full-year target, saying growth should speed up as the year progresses.
Shares of General Mills, which makes Cheerios cereal and Progresso soups, rose 3 percent on Wednesday.
Rivals Kellogg Co (K.N) and Campbell Soup Co (CPB.N) also rose, as General Mills' comments relieved investor concern over the impact of an industry price war that hit ConAgra Foods Inc (CAG.N) when it reported results on Tuesday.
"It's a sigh of relief," said Edward Jones analyst Jack Russo. "Investors are saying 'OK, ConAgra was a one-off. It's not contagious to the group.'"
ConAgra blamed rising commodity costs and a need for aggressive promotions that failed to lift sales for its disappointing results, but General Mills saw sales rise in most of its businesses.
In addition to higher sales volume, General Mills got a boost from selling more premium-priced products, such as Greek-style Yoplait yogurt and frozen Macaroni Grill dinners.
"One of the advantages that we have is that our portfolio of categories ... gives us a chance to play where consumers are looking for benefits," Chief Financial Officer Don Mulligan said in an interview. "That's the fundamental difference between what you saw with ConAgra and what you see with us."
ConAgra's brands include Hebrew National hot dogs, Chef Boy-Ar-Dee canned pastas and Healthy Choice frozen dinners.
Like other packaged food makers, General Mills said it expects the intense promotions seen across the industry to ease over the next year as commodity costs rise, giving manufacturers less of a cushion with which to fund those discounts meant to lure still-cautious consumers.
Despite this summer's spike in grain costs, fueled by a drought in Russia, General Mills affirmed its forecast for a 4 percent to 5 percent increase in costs this fiscal year.
It said it is 65 percent hedged on its commodity and energy needs for the year and expects to be able to offset remaining cost increases with expense curbs and fewer promotions.
In addition, General Mills said grains make up less than 10 percent of its total cost of goods.
"Our name may be General Mills, but we're not all grain-based," Mulligan said on a conference call.
General Mills said it still expects fiscal 2011 earnings of $2.46 per share to $2.48 per share, excluding the impact of revaluing some commodities positions.
In its fiscal first quarter that ended on August 29, its net income was $472.1 million, or 70 cents per share, up from $420.6 million, or 62 cents per share, a year earlier.
Excluding items, earnings were 64 cents per share, topping analysts' average estimate of 63 cents per share, according to Thomson Reuters I/B/E/S.
Net sales rose 1.5 percent to $3.53 billion, missing analysts' average estimate of $3.57 billion. Increased sales volume boosted net sales by 2 percentage points, while foreign exchange rates reduced it by 1 percentage point.
In the company's U.S. retail segment, its largest business, sales rose 2 percent, helped by increases in sales volume and average price. Yet the segment's operating profit was 3 percent lower, due to higher commodity costs and advertising expenses.
The retail business saw net sales rise 4 percent for cereals, 5 percent for snacks, 4 percent for yogurt and 3 percent for meal products, such as Old El Paso Mexican foods and Macaroni Grill frozen entrees. Sales of Pillsbury bakery products fell 3 percent.
General Mills did not give an update on a disagreement with the owners of the Yoplait yogurt brand, and the company declined to comment on whether it was mulling a bid for the brand following a British newspaper report on Sunday saying that it was.
General Mills shares were up $1.08, or 3.0 percent, at $36.75 in afternoon trading on the New York Stock Exchange. Kellogg shares were up 1.0 percent at $50.85 while Campbell Soup shares were up 1.1 percent at $36.67. ConAgra shares were off 0.3 percent to $21.50.
(Reporting by Martinne Geller; Editing by Gerald E. McCormick, Dave Zimmerman)