NEW YORK General Mills Inc (GIS.N) forecast fiscal 2011 earnings below Wall Street expectations, sending the food maker's shares down more than 4 percent.
The company, whose brands include Cheerios, Green Giant, Haagen-Dazs, Pillsbury and Wheaties, forecast full-year earnings of $2.46 to $2.48 per share. Analysts on average were expecting $2.49 per share, according to Thomson Reuters I/B/E/S.
The forecast is "very much in line" with the company's long-term growth model, Chairman and Chief Executive Ken Powell told Reuters in an interview.
"There must have been some expectations for an upside surprise versus our model," said CFO Don Mulligan in the same interview, noting the model calls for low single-digit growth in sales, mid-single-digit growth in operating profit and high single-digit growth in earnings per share.
Mulligan also referred to the 3.6 percent increase in the company's share price over the past month.
"We're giving back a bit of out-sized gain as well," Mulligan said.
On a conference call with analysts Mulligan said the outlook assumes no earnings-per-share growth for the current first quarter.
"The guidance was a little light for fiscal 2011 and back-end weighted," said Edward Jones analyst Jack Russo.
He said the company could be exercising caution in the face of increased volatility in the cost of commodities such as fuel and milk.
General Mills said its full-year plan assumes an increase of 4 percent to 5 percent in supply-chain costs. Still the company expects its gross profit margin to hold steady due to productivity initiatives and efforts to sell a greater proportion of higher-priced products.
For the fiscal fourth quarter, which ended on May 30, General Mills reported net income of $211.9 million, or 31 cents per share, down from $358.8 million, or 53 cents per share, a year earlier.
Excluding items, General Mills earned 41 cents per share, in line with analysts' estimates.
The company's gross margin was essentially flat with the year-earlier period excluding mark-to-market accounting effects and a 10 percent increase in media spending. Russo said that was another area of disappointment, since the margin had increased in the third quarter.
Sales fell 2 percent to $3.57 billion, hurt by divestitures and one less week in the period versus a year ago.
Excluding the impact of last year's extra week, sales in the unit that supplies U.S. retail stores rose 5 percent, while sales by volume rose 8 percent. Sales in the international business rose 6 percent, excluding the extra week, while sales in the food service business declined due to divestitures, Powell said.
The company said its relationship with Wal-Mart Stores Inc (WMT.N), which is increasing its focus on its grocery business, remains very strong. Wal-Mart recently announced "roll-back" pricing on dozens of items to attract more shoppers.
The results come a day after General Mills announced a 16.7 percent dividend increase and a new share buyback authorization for as many as 100 million shares.
General Mills shares fell 4.5 percent to $35.25 after closing at $36.90, down 1.3 percent in the regular session on the New York Stock Exchange.
(Reporting by Martinne Geller; additional reporting by Lisa Baertlein; editing by Gary Hill and Andre Grenon)