Continued weakness in yogurt sales dragged on results, with sales off 10% from a year ago.
An acquisition-fueled surge in international business helped keep General Mills' first-quarter results ahead of Wall Street's expectations.
The Golden Valley-based food giant said Wednesday that, excluding acquisitions, its overall sales were flat and that its U.S. business -- while strengthening -- still posted a revenue decline.
"It was a somewhat mixed report," said Tom Graves, a stock analyst with S&P Capital IQ. Still, "the bottom line was better than expected, and it seemed the year got off to a decent start, given expectations."
General Mills, maker of everything from Hamburger Helper to Nature Valley granola bars, reported first-quarter net earnings of $549 million or 82 cents per share, up 35 percent over a year ago.
Excluding one-time items, earnings per share were 66 cents compared with analysts' estimates of 62 cents from Thomson Reuters. General Mills got a penny per-share profit boost from a lower tax rate during the quarter compared to a year ago.
The company's sales for the quarter ending Aug. 26 tallied $4.05 billion, up 5 percent over a year ago but below Thomson Reuters estimates of $4.08 billion.
"Our first quarter performance was broadly in line with expecations," CEO Ken Powell told analysts in a conference call. "[Sales] volume and gross [profit] margin trends are improving and we launched 100 new products." General Mills' stock closed at $40.02, up 71 cents.
General Mills' much-chronicled weakness in its U.S. yogurt business -- courtesy of its poor showing in the Greek segment -- was apparent again during the quarter, with yogurt sales sinking 10 percent over a year ago.
Still, Powell told analysts that figure "masks some good progress" during the quarter, including an 85 percent gain in Greek-style yogurt sales and a nearly one percentage point gain in market share for Greek-style yogurt. The company recently launched new Greek products and plans a marketing blitz in its current quarter.
General Mills' international business shined during the quarter, with revenues growing 36 percent, excluding negative currency swings.
Much of the increase is rooted in General Mills $1.2 billion acquisition of a controlling interest in France-based Yoplait's international yogurt operations last year. In May, the company announced another big deal, buying Brazilian food maker Yoki Alimentos for around $860 million.
"It's becoming more of an international story, and that will grow even more in the company's ensuing quarters," said Jack Russo, a stock analyst at Edward Jones. He noted that Yoki's sales and profits have yet to show up in General Mills' results.
Even without acquisitions, General Mills international sales grew 8 percent, excluding negative currency swings.
U.S. sales are another story. The U.S. packaged foods industry generally has been grappling with high commodity prices and a weak economy. In General Mills' last fiscal year, its commodity price inflation clocked in at 11 percent, part of which was passed down to cash-strapped consumers -- weakening demand.
The good news: General Mills expects its input prices to rise only 2 to 3 percent this fiscal year, despite a big run-up in grain prices this summer. "We can absorb that level of inflation with productivity [increases]," Powell said in an interview.
And General Mills' retail sales as measured in pounds during its first quarter were the best they've been in over a year. "We're seeing a recovery in unit demand across our categories," Powell said.
The bad news is that U.S. sales volume by pounds still fell 2 percent.
Jonathan Feeney, an analyst at Janney Capital Markets, wrote in a report Wednesday that it's not clear that "the causes of [General Mills'] prolonged volume softness have been addressed."
The situation seems more "complicated" than simply higher prices and weakening consumer demand exacerbated by the weak economy, he wrote.
Mike Hughlett • 612-673-7003
Figures in millions except for earnings per share.