General Mills has hope for yogurt

General Mills Inc. offered investors a ray of hope for its struggling yogurt business Wednesday, while posting fourth-quarter profits in line with Wall Street's expectations.

The company seems to have gotten some traction in Greek-style yogurt, a category that has boomed the past two years and taken sales away from traditional yogurt, the stronghold of General Mills' Yoplait brand. Yoplait Greek 100, a lower-calorie Greek yogurt, has had a strong first year so far and is expected to do over $140 million in sales.

CEO Ken Powell told analysts that the company will launch a new version of its conventional Greek product next month, "a filtered traditional yogurt" with a "terrific taste profile." General Mills' current conventional Greek product has only a small slice of the Greek yogurt market.

Powell noted, too, that "turns" of core Yoplait products — Yoplait Light, Yoplait Original — have improved significantly. In other words, they're moving off grocery shelves at a faster rate than they had been at Yoplait's nadir. Yoplait's overall U.S. position now "is much better than it was a year ago," Powell said in an interview with the Star Tribune.

General Mills' sales for the quarter clocked in at $4.4 billion, up 8 percent over a year ago and above the $4.32 billion expected by analysts. Seven percentage points of that growth came from new and mostly international businesses that General Mills acquired in the past year, notably Brazilian food maker Yoki Alimentos.

But the company's financial forecast for its new fiscal year came in below expectations, putting a damper on its stock. General Mills shares closed at $48.10, down 23 cents, while the broad stock market rallied, with the Dow Jones industrial average up 150 points.

"I think analysts were disappointed that guidance for earnings and sales were a little light," said Jack Russo, a stock analyst at Edward Jones. "But I think this management team just wants to be conservative with guidance."

Net earnings for the company's fiscal fourth quarter were $366.3 million, up 13 percent from a year earlier.

"I think it was an OK quarter, but obviously there's room for improvement," said Erin Lash, a stock analyst at Morningstar Inc.

Indeed, segment operating earnings — a gauge closer to actual business conditions — were down 2 percent to $722 million. And U.S. retail sales are so-so. They rose 2 percent over last year's fourth quarter and 1 percent for the recently ended fiscal 2013 over the previous year.

While General Mills' U.S. snacks business boomed in 2013 — sales were up 9 percent — its big U.S. breakfast cereal business lagged, with sales falling 2 percent.

In yogurt, the U.S. Yoplait division posted a 5 percent decline in sales for the second consecutive year, a striking fall given Yoplait's sales advances in years prior.

Powell told stock analysts to expect strong levels of innovation in yogurt and across the whole company in fiscal 2014. "Our plans for this year add up to a healthy level of top- and bottom-line growth, fueled by robust innovation and marketing plans across our portfolio," Powell said.

General Mills said it expects input cost inflation of 3 percent this year. Its adjusted earnings are anticipated to grow at a "high single digit rate, to a range of $2.87 to $2.90 per share." However, that's below the $2.93 expected by Wall Street, according to a recent report by a stock analyst at Barclays.

"I think people were looking for a better revenue outlook and input cost environment," said Tom Graves, an equity analyst at S&P Capital IQ whose own forecast for Mills' profits this year is $2.90 per share, at the top of the company's range. "I do think they have an opportunity to post pretty decent earnings growth in 2014," he said.

For its recently ended fiscal year, General Mills recorded adjusted earnings per share of $2.69, up 5 percent over the previous year. Its sales grew 7 percent to $17.8 billion, with new businesses contributing 6 percentage points.