General Mills signals pressure on profits

Weak sales volume continued to dog the company, while yogurt marketing costs rose.

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General Mills said its fiscal third-quarter profit would come in below expectations in part due to greater marketing spending for yogurt, where it has been playing catch-up in the Greek yogurt trend. It called results from its yogurt comeback effort "encouraging."

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General Mills Inc. on Friday signaled that its third-quarter profit will come in lower than expected, another sign of persistently weak sales volume in the packaged-food industry.

The Golden Valley-based food giant also said profits were being crimped by increased marketing spending on yogurt, a product category where General Mills has been pressured by new competitors.

Sales volume for the third quarter fell 1 percent due to relatively weak demand for packaged foods in developed markets like the United States. That same soft U.S. sales volume has played out at other packaged-food companies for several quarters.

“Overall trends in the industry remain challenging,” said Jack Russo, a stock analyst at Edward Jones. “I just think consumers, particularly lower-income consumers, are being very frugal.”

General Mills said it expects to report an adjusted profit of 61 cents to 62 cents per share for the three months ended Feb. 23 when it announces full results next Wednesday. That’s below the 68 cents per share that investors and analysts were expecting.

Investors reacted by pushing General Mills shares down $1.24, or 2.4 percent, to $49.77 on Friday.

The company said, however, that it still expects to meet its full-year profit guidance of $2.87 to $2.90 per share for the fiscal year that will end May 25.

General Mills also said that operating profit in its U.S. retail segment, its largest, would be 10 percent to 11 percent below year-ago results. But it noted that the unit had a strong gain in the year-ago period, creating a difficult comparison.

Other packaged-food companies also have let down investors in recent months. ConAgra Foods lowered its 2014 profit outlook, partly due to weaker-than-expected volume in consumer foods. And spice maker McCormick & Co., one of the more downturn-proof food companies, also lowered its full-year earnings outlook.

Beyond broader industry trends, General Mills has a specific problem: yogurt. Yoplait is one of its biggest U.S. businesses, but it’s been hammered by the rise of Greek-style yogurt, a trend that ­General Mills was late recognizing.

The company has ramped up its Greek efforts, launching an advertising blitz in January that increased marketing costs for the quarter. General Mills said consumer response to its new yogurt products has been “encouraging.”

The company also said it expects fourth-quarter per-share results to show a double-digit gain because of lower commodity prices, a lower tax rate and buybacks that have reduced the number of outstanding shares.

 

Staff writer Evan Ramstad contributed to this report. Mike Hughlett • 612-673-4241

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