UPDATE 2-General Mills bets on healthier Cheerios, granola bars

Wed Jun 25, 2014 2:26pm EDT

* Fourth-quarter adjusted profit $0.67/share vs est $0.72

* Sales fall 2.9 pct to $4.28 bln vs est $4.42 bln

* Co says streamlining operations to save $40 mln in 2015

* Shares fall as much as 4 pct (Adds CEO and analyst comment, details from conference call, background; updates share movement)

June 25 (Reuters) - General Mills Inc, maker of Cheerios cereal and Betty Crocker baking products, said it would launch healthier products and revamp and promote its existing ones to revive sales that have slipped for three straight quarters.

The company, whose shares fell as much as 4 percent, also said advertising spending could grow faster than sales in the coming year.

General Mills is jumping into an increasingly crowded market for healthier foods, with rivals also chasing health-conscious consumers. But the industry has little choice as long-standing brands lose ground to cheaper store brands.

"Consumers today are seeking more protein at breakfast and we are responding," Chief Executive Ken Powell said on a post-earnings conference call on Wednesday.

General Mills has launched protein-based Nature Valley granola bars and Cheerios cereals and has struck a deal with McDonald's Corp to have its Yoplait yogurts offered with Happy Meals in thousands of outlets from next month.

Rival ConAgra Foods Inc has said that its Healthy Choice brand under which it sells healthy frozen meals and soups continued to face challenges and substantial volume decline in the third quarter ended Feb. 23.

Kraft Foods Group Inc, Kellogg Co, Unilever Plc and many other large food companies have also taken steps as health-conscious consumers lose their taste for highly processed foods.

To cut costs, General Mills said it was reviewing its North American manufacturing and distribution network with a view to save $40 million pretax in the year ending May 2015.

The company said savings from an ongoing cost-cutting program in its supply chain are expected to exceed $400 million in 2015.

General Mills said it expected net sales to grow at a mid-single-digit percentage rate in fiscal 2015, with adjusted earnings per share growing by high-single digits.

Sales in the company's U.S. branded goods retail business, which accounted for 60 percent of revenue in the year ended May 25, fell 1 percent to $2.4 billion in the fourth quarter.

The division's brands include Green Giant canned and frozen vegetables, Progresso soup and Pillsbury frozen foods.

Sales in the company's international business, its second-largest division that includes Old El-Paso Mexican foods and Haagen-Dazs ice-creams, fell 7 percent to $1.3 billion.

Net sales fell 2.9 percent to $4.28 billion. Analysts had expected sales of $4.42 billion.

Net income rose 10.4 percent to $404.6 million, or 65 cents per share from $366.3 million, or 55 cents per share, a year earlier.

Excluding items, earnings were 67 cents per share. Analysts had expected 72 cents per share, according to Thomson Reuters I/B/E/S.

One-time items include a 6-cent per share gain from the sale of several grain elevators and a 9-cent per share charge associated with the devaluation of Venezuela's currency.

The Minneapolis, Minnesota-based company's shares were down 3.1 percent at $52.01 in afternoon trading on the New York Stock Exchange. (Reporting by Shailaja Sharma in Bangalore; Editing by Sriraj Kalluvila)

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