General Mills has healthy quarter

Not only are consumers eating at home more, but they're eating more cereal.

Those trends helped propel General Mills to a 14 percent sales gain in its first fiscal 2009 quarter as it beat analyst expectations Wednesday and slightly raised its earnings outlook for the year.

The Golden Valley-based food giant earned $278.5 million, down 4 percent from a year ago on commodity hedges and higher food costs. Total sales were $3.5 billion, with good showings in both the U.S. and international markets.

"We are seeing consumers eat out at restaurants a little less often and going into grocery stores a little more often to stretch their food dollars" because of the slowing U.S. economy, CEO Ken Powell said in an interview.

But Powell attributed much of the company's strong performance to General Mills' ability to keep turning out innovative new products and brand building.

"This company has done a very, very good job of managing through what has been a tough commodity cost environment," Edward Jones analyst Matt Arnold said in an interview.

The company is estimating a 9 percent cost increase for raw ingredients in the current quarter that began Aug. 25. Wheat and dairy prices have fallen, but other products such as oats and soy oil remain higher than a year ago, said Chief Financial Officer Don Mulligan. "Our total basket is still up," he said, and he projected that food ingredient costs will remain high as the demand in emerging economies around the world continues to increase.

Excluding that non-cash item, per-share earnings would have been 96 cents, which bested the consensus estimate of analysts by 8 cents.

The company upgraded its earnings guidance for the full year to $3.81 to $3.85 per share, up from a prior estimate of $3.78 to $3.83.

The stock closed up nearly 2 percent, at $69.74, as the broader markets tumbled.

As other food companies have been stymied by high commodity prices, analysts used words such as "robust" and "impressive" to characterize General Mills' quarter. It produced double-digit growth in its three business segments -- U.S. retail, international and bakeries and food service.

U.S. retail -- the largest business line -- had net sales of $2.3 billion, a 13 percent gain. Credit Suisse analyst Robert Moskow said that increased and targeted advertising had raised awareness of the "weight management and health benefits" of MultiGrain Cheerios and Fiber One. In a report, he noted that those cereal products had "whopping" growth of 41 and 38 percent, respectively.

Beyond advertising in traditional media outlets, Powell said that General Mills is promoting the use of its products through the Internet, where millions of people get advice about preparing quick meals with Betty Crocker and Pillsbury brands.

General Mills had a 17 percent increase in consumer marketing, such as targeting ads for Honey Nut Cheerios to children and baby boomers and using "Batman" movie figures to sell cereal.

"We are reaching out more aggressively to multicultural consumers," Powell said, citing African-Americans and Hispanics.

"We know that that awareness-building [of products] helps drive our sales."

Liz Fedor • 612-673-7709