UPDATE 5-General Mills view hurt by taxes, expenses

Wed Jun 27, 2012 2:34pm EDT

* Q4 adj EPS 60 cents vs Wall St view 59 cents
    * Sales rise to $4.07 bln vs view $4.11 bln
    * Sees '13 EPS $2.65 incl hit from taxes, pension,
acquisition
    * Shares down 2 pct in afternoon trading


    By Martinne Geller
    June 27 (Reuters) - General Mills Inc forecast
full-year earnings below Wall Street estimates as it boosts
investment in emerging markets and its North American Yoplait
yogurt business.
    Shares of General Mills, which also makes Progresso soups
and Cheerios cereal, were down nearly 2 percent in afternoon
trading, as the weaker near-term forecast overshadowed a slight
profit beat in the just-ended fiscal fourth quarter.
    General Mills forecast earnings of $2.65 per share for
fiscal 2013, which started on May 28. The forecast includes hits
of 8 cents per share from a higher pension expense and tax rate
and 2 to 3 cents from its anticipated acquisition of Brazilian
food maker Yoki Alimentos. 
    Analysts on average were expecting $2.75 per share,
excluding items, according to Thomson Reuters I/B/E/S. 
    JP Morgan analyst Ken Goldman said the forecast implied only
3.7 percent earnings growth, which he said was low, even in the
current low-growth packaged food environment. 
    "Though we think the buy-side's forecast was below the
sell-side's, we are not sure investors' estimates were this low,
and we see the $2.65 figure as disappointing," Goldman said.
    On a conference call with analysts, General Mills executives
said they remained committed to their previous longer-term
targets. In 2010, the company said it was aiming to reach $18
billion in sales by 2015, with earnings per share growing at a
high single-digit rate on average, and reaching $6.75 by 2015.
    For fiscal 2012, General Mills reported sales of $16.7
billion and earnings of $2.56 per share.
    One key area of investment for General Mills this year is
the North American yogurt business, where the recent popularity
of Greek yogurt, especially the Chobani brand, is fueling growth
among health-conscious consumers.      
    S&P Capital IQ lowered its opinion on General Mills shares
to "Buy" from "Strong Buy" following the disappointing outlook. 
    "We like the long-term prospects for the cereal and yogurt
categories, though we think General Mills has lagged in U.S.
Greek yogurt," said S&P Capital IQ analyst Tom Graves.   
    General Mills said it will launch 35 new yogurt products in
the United States in the first half of the fiscal year,
including A 100-calorie Greek Yoplait yogurt, a Yoplait yogurt
with six or fewer ingredients and new variations of its Liberte
brand. 
    General Mills plans to increase marketing to support those
brands, but on a global basis, the company's marketing budget as
a percentage of sales will be roughly the same as this year.
    "We're spending a very solid percentage of sales on
marketing right now," Chief Executive Ken Powell said in an
interview. "All of these new launches will have the right level
of support." 
    Another area of investment is in emerging markets,
particularly China, where the company is expanding its
Haagen-Dazs ice cream shops.        
    Like many U.S. food makers, General Mills is expanding in
faster-growing emerging markets as consumers in North America
and Europe remain cautious amid lingering economic weakness. 
    
    PROFIT BEATS
    General Mills' net income rose to $325.4 million, or 49
cents per share, in the fiscal fourth quarter, from $320.2
million, or 48 cents, a year earlier. 
    Excluding items, earnings were 60 cents per share. On that
basis, analysts, on average, expected 59 cents per share,
according to Thomson Reuters I/B/E/S. 
    Net sales rose 12 percent to $4.07 billion, led by the
recent acquisition of the international Yoplait business.
Analysts expected $4.11 billion. 
    The company expects 2013 net sales to grow at a
mid-single-digit percentage rate, with segment operating profit
rising slightly faster than that. 
    It excludes one-time integration costs, commodity accounting
adjustments and restructuring expenses. 
    The company expects commodity inflation of 2 percent to 3
percent this year, which is below its long term expectations and
the inflation seen last year, which was the highest in decades. 
    General Mills shares fell 81 cents, or 2 percent, to $37.34
on the New York Stock Exchange.
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