General Mills Inc., the maker of Cheerios and Progresso soup that had been powering through the recession with earnings growth, saw its stock fall sharply Wednesday after third-quarter earnings came in lower than expected.
The Golden Valley company said it expects a strong fourth quarter, however, and it raised its full-year forecast.
A strong dollar cut into overseas performance and the falling prices of wheat and oats hurt the value of the company's inventory, the company said. Shares plummeted 11 percent.
Earnings for the quarter ended Feb. 22 were $288.9 million, down 33 percent from a year ago. Excluding one-time items, General Mills earned 79 cents a share; analysts had expected 88 cents.
Analyst Phil Dobrzynski of Riverbridge Partners said the lackluster earnings were easily explained by input costs and exchange-rate fluctuations.
"I was surprised the stock got hammered as hard as it did," he said. "It told me that people don't believe the story, or aren't looking at what the company is saying."
The company said higher prices for the ingredients it uses to make everything from Cheerios to Totino's pizzas cut into earnings; ingredient inflation should run at 9 percent this year, the company said, far above the 5 percent average seen for much of the past decade.
Sales for the quarter grew 4 percent to $3.54 billion, but pound-for-pound volume of food sold was down 1 percent for the quarter.
General Mills CEO Ken Powell said earnings comparisons in this quarter were hurt by three factors, with foreign exchange rates and commodity price fluctuations among them. A third dart was last year's sale of property and a business -- 8th Continent soy milk -- that fattened the bottom line for the third quarter, making comparisons this year difficult.
"Our underlying performance was quite strong," Powell said in comments after speaking to analysts.
Some of the best results came from the company's flagship Big G cereal division, where sales were up 13 percent for the quarter -- enough that one analyst called it "somewhat amazing."
Powell told analysts in a call Wednesday morning that he expects a strong finish to the year. The company raised its guidance, from $3.83 to $3.87 per share to $3.87 to $3.89 a share; that still falls short of analyst estimates of $3.94 a share, however.
The stock closed at $47.63 on Wednesday, a loss of $6.03 per share, or 11.24 percent. It was the lowest price in three years.
Matt McKinney • 612-673-7329
