* Earnings of $0.64 per share top Wall Street view of $0.57
* Raises full-year outlook by 1 cent per share
* Expects higher costs to hurt fourth-quarter earnings
* Shares up 3 percent
March 20 (Reuters) - General Mills Inc reported better-than-expected third-quarter earnings on Wednesday after sales volume of its core brands rose for the first time in two years, a good sign for the U.S. packaged food industry.
The maker of Cheerios cereal, Progresso soups and Haagen-Dazs ice cream saw its shares rise more than 3 percent to their highest level in at least three decades.
So far this year the shares are up 19 percent, with much of that coming in the wake of the Berkshire Hathaway and 3G Capital deal for H.J. Heinz, which has boosted valuations for many food companies, said Edward Jones analyst Jack Russo.
Still, Russo said General Mills has been performing better in some of its challenged businesses, including cereal and yogurt.
"It looks like they're reinvesting back into the business, which is always smart," Russo said.
Excluding the benefit from the recent acquisitions of Yoki Alimentos in Brazil and Yoplait Canada, General Mills said sales by volume rose 1 percent. That is the first gain since the third quarter of fiscal 2011 for that closely watched metric. In the intervening period, the company had raised prices on many of its products to offset unprecedented commodity cost inflation, which hurt sales.
"We think the consumer environment is improving," Chief Executive Ken Powell said in an interview on Wednesday. "As the price comparison moderates, the consumer is coming back."
In the third quarter, ended on Feb. 24, net income rose to $398.4 million, or 60 cents per share, from $391.5 million, or 58 cents per share, a year earlier.
Excluding items such as the costs of valuing commodity hedges and integrating recent acquisitions, earnings were 64 cents per share. On that basis, analysts on average were expecting 57 cents, according to Thomson Reuters I/B/E/S.
Net sales rose 7.5 percent to $4.43 billion.
Excluding the acquisitions, net sales grew 2 percent, with 1 percentage point coming from higher sales volume.
CURRENT QUARTER PRESSURED
General Mills lifted its full-year outlook by only a penny per share due to higher costs in the current fourth quarter related to a comparatively higher tax rate and commodity costs. The company said fourth quarter earnings would be lower than a year ago.
For fiscal 2013, which ends in May, General Mills forecast earnings, excluding items, of $2.66 per share to $2.68 per share, versus a prior range of $2.65 per share to $2.67. For the full year, General Mills said it expected costs of raw materials, which include fuel and grain, to rise 3 percent.
While the packaged food industry has suffered in the United States because of lingering economic uncertainty, General Mills has faced some particular challenges. Its Yoplait yogurt has been pressured by the strength of Greek yogurts like the one made by Chobani Inc, while its cereal business has faced increased competition from other breakfast choices.
Sales for both segments declined in the third quarter, but General Mills said trends were getting better.
For fiscal 2014, the company expects high single-digit earnings growth, which it said was in line with its long-term model.
General Mills shares rose $1.36 to $47.78 on the New York Stock Exchange.