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Cereal is General Mills’ biggest U.S. business. During the second quarter, U.S. cereal sales declined 2 percent.

Glen Stubbe, Star Tribune

Global growth helps General Mills as core U.S. products struggle

  • Article by: MIKE HUGHLETT
  • Star Tribune
  • December 19, 2012 - 11:34 PM

General Mills Inc. on Wednesday posted a solid quarter -- profits grew at a heady pace, international sales boomed -- but weakness lurked in two of its key U.S. businesses, yogurt and cereal.

The packaged food giant's earnings rose 22 percent over a year ago, topping Wall Street's expectations. "The company seems to be hitting its bottom-line financial guidance solidly," Alexia Howard, an analyst at Bernstein Research, wrote in a report Wednesday.

"However, organic sales growth remains sluggish, mainly due to the competitive dynamics in U.S. cereals and yogurt."

General Mills CEO Ken Powell said cereal and yogurt sales should accelerate as the company is launching new products and boosting its marketing spending.

Golden Valley-based General Mills, producer of Hamburger Helper and Green Giant vegetables, recorded a fiscal second-quarter profit of $541.6 million, or 82 cents a share, compared with $444.8 million, or 67 cents, for the same period a year ago.

Stock analysts polled by Thomson Reuters were, on average, expecting a profit of 79 cents per share. They were forecasting sales of $4.88 billion, and that's what General Mills reported, an increase of 6 percent over a year ago.

"We had a good second quarter and first half fueled by strong operating profit gains across all three segments of our business," Powell told analysts in a conference call.

The company also Wednesday upped its profit guidance slightly. General Mills is looking for annual earnings of $2.65 to $2.67 per share, compared with $2.65 previously.

Still, "the competitive environment remains intense and it continues to deal with a very cautious consumer," said Erin Lash, a stock analyst at Morningstar Inc.

General Mills' stock closed at $41.27, down 50 cents.

In terms of revenue gains, General Mills was led by its burgeoning international division. Its sales grew by 19 percent to $1.38 billion, boosted by the company's August purchase of Brazilian foodmaker Yoki Alimentos SA, a nearly $1 billion deal.

However, an expected devaluation of Venezuela's currency is likely to hurt Yoki's profits in the second half of the fiscal year.

In the United States, General Mills sales grew 2 percent over a year ago to $2.98 billion, while operating profits grew 9 percent. Both measures improved markedly over the first quarter. And General Mills' red-hot snack division, home to its Nature Valley bars, saw sales jump 15 percent over a year ago.

General Mills on Wednesday unveiled several new snack products for 2013, including Green Giant-branded sweet potato chips and veggie-tortilla chips.

Also due out in January are three new Big G cereals, including Cheerios Honey Nut Medley Crunch, a variation of Honey Nut Cheerios, the top-selling U.S. cereal. The new item, along with its familiar oat rings, contains wheat flakes and clusters of whole-grain oats and almonds.

Cereal is General Mills' biggest U.S. business. During the second quarter, year-over-year U.S. cereal sales declined 2 percent, after a 3 percent corresponding drop in the previous quarter. Promotions by competitors -- notably Post and Quaker -- are part of the problem.

"There have been some larger levels of promotion in the category than we expected," Powell told the Star Tribune in an interview. "But we exited the second quarter with pretty good momentum in cereal."

As for Yoplait, U.S. sales fell 5 percent in the second quarter over a year ago. Still, that was an improvement over a dismal first-quarter decline of 10 percent. General Mills is trying to claw back business lost due to the spectacular rise of Greek-style yogurt, particularly the Chobani brand.

General Mills made progress during the quarter. Shoppers were buying its conventional yogurts at a quicker pace; grocery shelf turnover improved. And Yoplait's own Greek yogurt saw its Greek market share hit 8.3 percent during the quarter, up from 5.7 percent three months ago.

"We are getting that business back to where it needs to be," Powell told the Star Tribune.

Still, analyst Howard noted that General Mills looks to fall "well short" of its full-year sales growth targets for U.S. yogurt.

Mike Hughlett • 612-673-7003

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