Cereal maker General Mills Inc. said Wednesday its second-quarter profit slipped 3 percent, but adjusted results beat expectations as costs of key ingredients eased and more shoppers reached for its Yoplait Yogurt, Cheerios and Progresso Soup brands.
Chief Executive Ken Powell said the company is seeing growth in its major categories, including cereal and yogurt. Consumers are increasingly spurning eating out in restaurants and instead eating more at home to save money.
The Golden Valley, Minn.-based company raised its full-year guidance, even as it said it expected input cost inflation of 9 percent in 2009 and less benefit from foreign currency exchange. As the U.S. dollar gains strength, that hurts companies that do portions of their business overseas.
The company said earnings in the quarter ending Nov. 23 fell to $378.2 million, or $1.09 per share, from $390.5 million, or $1.14 per share, last year. But excluding charges on commodity positions and a gain on the sale of its Pop Secret microwave popcorn business, profit totaled $1.36 per share.
Revenue rose 8 percent to $4.01 billion from $3.7 billion last year.
The results beat estimates of analysts polled by Thomson Reuters, who had predicted profit of $1.23 per share on revenue of $4 billion, on average. Analyst estimates typically exclude one-time items.
Shares of General Mills rose 10 cents to close at $61.35 Wednesday.
Although there is competition from private label products, which typically cost less than their branded peers, General Mills keeps adding market share, Powell said in an interview.
"They're voting with their purchases," he said of consumers. "We are benefiting from that right now. We're gaining market share. We're outperforming in our categories across a wide range of our products and segments."
Domestic sales for General Mills' retail operations grew 10 percent in the quarter to $2.79 billion, partially offset by a 24 percent jump in marketing spending in the category. Sales of Betty Crocker dessert mixes and Gold Medal flour were strong, as was demand for Totino's pizza and pizza rolls as more cash-strapped consumers nixed eating out and cooked more at home.
International sales rose just 2 percent to $676 million, as the stronger dollar had a negative effect on sales _ a trend which is expected to eat away at full-year results.
Nevertheless, General Mills raised its full-year adjusted earnings guidance to a range of $3.83 to $3.87 per share, up from $3.81 to $3.85 per share. On average, analysts predict slightly higher profit of $3.89 per share.
Stifel Nicolaus & Co. analyst Christopher Growe wrote in a research note that the company "continues to produce outstanding results despite the weak economic environment." The firm reiterated its positive view on the company's shares.
