* Q2 adj EPS 76 cts misses Street view of 78 cts
* Net sales up 1 pct to $4.07 bln; misses view
* Affirms FY 2011 EPS forecast for $2.46-$2.48
* Sees $1 bln in cost savings by end of fiscal 2012
* Shares up about 1 percent
(Revises first sentence, adds CEO comments, updates share
By Martinne Geller
NEW YORK, Dec 16 General Mills Inc (GIS.N) said
price increases on foods like frozen vegetables and baking
products should help it meet its profit target for the current
The company also said it is on track to cut $1 billion in
costs by the end of May 2012, which should help offset rising
commodity costs, which contributed to weaker-than-expected
second-quarter results. And new products like Cinnamon Burst
Cheerios and Gluten Free Bisquick will lift sales.
The company posted earnings and sales on Thursday that
missed Wall street estimates, hurt by higher commodity costs
and spending on promotions such as a soup sampling program.
General Mills, which also sells Green Giant vegetables and
Progresso soup, is part of a U.S. packaged food industry that
has been squeezed in recent months by rising prices for
ingredients like wheat and cocoa, and concerns that
recession-weary consumers will resist the price increases
needed to help cover those costs.
"Consumers are now accustomed to reduced prices, and
getting them to pay a higher price may not be easy,"
Morningstar analyst Erin Swanson said. But General Mills has
such strong brands -- including Pillsbury and Betty Crocker --
that it is unlikely to be disproportionately hurt, she added.
Net income was $613.9 million, or 92 cents per share, in
the company's fiscal second quarter ended on Nov. 28, up from
$565.5 million or 83 cents per share a year earlier.
Excluding a tax benefit and accounting for commodity
hedges, earnings were 76 cents per share.
Net sales rose 1 percent to $4.07 billion.
Analysts on average were expecting earnings of 78 cents per
share on revenue of $4.11 billion, according to Thomson Reuters
The company actually sold 3 percent more food, but more of
that came from lower-priced items, while it also had to rely on
discounting to attract shoppers. Margins were also hurt by
higher costs for dairy, resin-based packaging, fuel, cocoa and
PRICES SET TO RISE, BUT NO WORD ON YOPLAIT
The current conditions contrast with those that led General
Mills to post very strong profit growth in the year-earlier
quarter, when price increases taken during the last bout of
commodity inflation fattened profit margins as costs receded.
The company has announced price increases on some of its
baking products, snacks and frozen vegetables, and executives
said increases should take effect in January and February. As
the fiscal year progresses, the company expects the number of
promotions to ease throughout the industry.
"As we go forward into the new calendar year, we're going
to see some return to inflation," Chief Executive Ken Powell
said in an interview. "We live in volatile times."
General Mills expects costs to rise about 4 to 5 percent
this year. The company, typically one of the industry leaders
in keeping costs down, said it is on its way to reducing costs
by $1 billion by the start of fiscal 2013. It expects
improvements in its supply chain to reduce costs by more than
$4 billion over the next decade.
General Mills also distributes Yoplait yogurt in the United
States. Industry=watchers say it could be a suitor for the 50
percent stake in Yoplait that private equity fund PAI Partners
wants to unload in a sale slated to begin on Monday.
Powell declined to comment on potential interest in
Yoplait, but said that smaller, bolt-on acquisitions were part
of General Mills' growth strategy, especially if it can expand
the company's position in a category either in the United
States or abroad. It announced last month plans to acquire the
Mountain High yogurt brand from Dean Foods. (DF.N)
General Mills still expects full-year earnings of $2.46 to
$2.48 per share, excluding one-time items.
Shares of General Mills were up 0.8 percent at $36.66 in
early afternoon on the New York Stock Exchange.
(Reporting by Martinne Geller; Editing by Derek Caney, Dave
Zimmerman and Matthew Lewis)