General Mills quarterly profit beats estimates as costs fall

(Reuters) - General Mills Inc GIS.N on Wednesday reported a better-than-expected quarterly profit, helped by cost cuts and higher demand in markets outside the United States, and company executives said its pivot toward brands aimed at health-conscious consumers was paying off.

A box of Cheerios breakfast cereal made by General Mills is shown in this illustration photograph taken in Encinitas, California, U.S. June 27, 2016. REUTERS/Mike Blake

The maker of Cheerios cereal and Yoplait yogurt raised its dividend and forecast earnings for the coming year above Wall Street forecasts. Shares shot to a record high $67.42, and are up roughly 19 percent in the past year, while the S&P 500 is little changed in the same period.

General Mills has responded to weak U.S. sales by cutting jobs, selling plants and exiting stagnant brands with lower profits like Green Giant while investing in gluten-free, organic options like Annie’s and cutting back on salt and artificial ingredients in its products.

“We see consumer values and ideas about food changing pretty rapidly,” Chief Executive Ken Powell told Reuters, deeming the millennial demographic as the leader of such a trend.

“We’ve never seen it this fast.”

Powell said the Minneapolis-based company’s efforts to innovate and align with consumer interests by communicating efficiently helped it gain traction on a number of businesses during the quarter.

“We build a relationship within that population and talk to them,” Powell said.

“We’re in their homes and in their kitchens.”

“We are pleased to hear the company will be re-focusing its energy on only its key categories going forward such as cereal, snack bars and natural and organic,” Jack Russo, an analyst for Edward Jones said.

“That’s where the majority of new investment will be made and that makes complete sense.”

The company’s U.S. retail sales dropped 12 percent to $2.2 billion in the fourth quarter, hurt by lower volume sales. Sales in other markets declined 1 percent as a strong dollar more than offset the benefit of a 3 percent rise on a constant-currency basis.

General Mills said it was cutting costs further, which would push up its adjusted profit by 6 percent to 8 percent in the year ending May 2017.

That translates to $3.09-$3.15 per share, beating the average analyst estimate of $3.04, according to Thomson Reuters I/B/E/S.

Net earnings attributable to General Mills more than doubled to $379.6 million, or 62 cents per share, in the quarter ended May 29. Selling, general and administrative expenses fell nearly 6 percent.

Excluding items, the company earned 66 cents per share.

Net sales, however, fell 8.6 percent to $3.93 billion, the fourth straight quarter of decline.

Analysts on average had expected a profit of 60 cents per share and revenue of $3.86 billion.

The company raised its quarterly dividend to 48 cents per share from 46 cents.

Additional reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Kirti Pandey, Bill Trott and David Gregorio