Even a 17 percent profit drop in the fourth quarter didn't dampen the mood at General Mills.
Commodities play havoc with General Mills profit
Even though sales rose 13% for the quarter, earnings took a big hit, courtesy of volatile commodity markets.
June 26, 2008 at 1:30AM
Sales were up almost 10 percent for the year, to $13.7 billion, for the maker of Cheerios, Progresso Soups and Yoplait yogurts, but the wildly fluctuating commodity markets meant a loss in operating profit, as accountants revalued the company's market positions and inventories of wheat and corn.
That change in the books was significant, but it wasn't a cash loss.
"We didn't actually lose any money," spokesman Tom Forsythe said.
But the explanation didn't sway Wall Street, as shares fell 1.94 percent to $61.19.
General Mills raised prices on many of its products in recent months -- cereals and soups went up just in the past couple of weeks -- to offset the rising prices of energy and grains. More price increases are on the horizon, CEO Ken Powell told analysts in a morning call Wednesday.
The company earned $185.2 million, or 53 cents per share, for the quarter ended May 25 when the impact of its commodity positions and inventory is included; exclude those items and the company saw a 73 cent gain -- an 18 percent jump from last year's fourth quarter gain of 62 cents per share. Sales were $3.47 billion, up 13.4 percent from the year-ago period.
This isn't the first time the commodity markets have wreaked havoc on the Golden Valley-based company. But in its previous quarter, it felt the upside, posting a 60 percent profit gain, much of it coming from the soaring values of wheat and corn inventories.
"This kind of thing would always have been there in the past, but it would not have been as big a number," Forsythe said.
Annual sales were up for each of the company's three main segments, with U.S. retail up 7 percent, to $9.1 billion, the international segment up 21 percent, to $2.6 billion and bakeries and food service up 11 percent, to $2 billion. The company's Cereal Partners Worldwide joint venture with Nestle saw sales rise 23 percent.
Earnings for the year climbed 13.2 percent, to $1.29 billion.
The company said in its earnings statement that it expects a 9 percent increase in supply chain costs this year. Still, General Mills expects growth of 7 to 9 percent for the coming year, with earnings expected to reach $3.78 to $3.83 per share.
The company also expects to introduce 300 products in the coming year, Powell added.
Matt McKinney • 612-673-7329
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