General Mills sees stable prices despite corn spike

Tue Jul 10, 2012 2:50pm EDT

(Reuters) - Food company General Mills Inc (GIS.N) expects its prices to remain stable and stood by its forecast for cost inflation of 2 to 3 percent this fiscal year, despite a recent spike in corn costs.

Corn prices have soared in recent days as weeks of hot, dry weather across much of the United States stoked fears of decimated yields in the Midwest crop belt. Yet U.S. corn and soybean futures fell on Tuesday due to a round of profit-taking and forecasts for rain.

But commodity costs overall are rising at much lower rates than last year, meaning that packaged food makers like General Mills have less need to raise prices, a move that often hurts sales.

"Consumers should see generally stable prices," General Mills Chief Executive Ken Powell said in an interview on Tuesday. He added that the operating environment should improve as the year progresses.

General Mills, maker of Cheerios cereal and Progresso soups, expects costs to be up 2 to 3 percent this year. That compares with an increase of more than 10 percent last year.

The company is about 50 percent hedged on commodity costs for the fiscal year, said Chief Financial Officer Don Mulligan.

The company is not a big user of corn, Powell said, noting that grains overall comprise only about 5 to 10 percent of the company's commodity basket.

GROWTH ABROAD

Before a meeting in New York with investors and analysts, General Mills' executives told Reuters they were interested in continuing to expand abroad, particularly in emerging markets like Brazil, India and China.

Following the integration of Brazilian food company Yoki Alimentos, which General Mills expects to acquire during the first half of this fiscal year, it will set its sights on India.

"We have our eyes on India next," Mulligan said. "We will get Yoki integrated and then do the groundwork to see what would be available at the right price in India."

The company already acquired an Indian spice and sauce company called Parampara.

China is also a key market, generating about $550 million in annual sales and growing roughly 20 percent a year.

In addition to the Wanchai Ferry brand of frozen dumplings, General Mills operates about 200 high-end Haagen-Dazs cafes in 45 Chinese cities. It plans to open 50 more stores there this year, and by 2015, it aims for China to generate $900 million in sales.

The company is also trying to boost sales of its ice-cream Mooncakes, said Gary Chu, president of General Mills' business in Greater China.

Christopher O'Leary, who oversees General Mills' business outside the United States, said there may be opportunities to sell other General Mills products in China, including Yoplait yogurt.

But he said the company does not "need" that, since for now, it is working on expanding its three main businesses beyond their current size. Bugles snacks are sold in 300 Chinese cities, Wanchai Ferry products are in 130 cities and Haagen-Dazs in 45 cities.

"As the emerging middle class continues to grow, one day Wanchai Ferry will be in 300 cities and Haagen-Dazs will be in 130 cities," O'Leary said. "We can just play this game for another decade."

General Mills shares were up 0.4 percent at $38.61 on the New York Stock Exchange on Tuesday afternoon. (Reporting by Martinne Geller in New York; Editing by Gerald E. McCormick, Marguerita Choy and Matthew Lewis)