General Mills' sales, profits exceed market expectations

Price increases boosted the cereal giant's earnings, raising share values by 3 percent. This in the face of soaring corn and oil costs.

By CHRIS BURRITT

Bloomberg News
June 19, 2008 at 2:40AM

As grain and fuel costs rise, so are prices of General Mills cereals, yogurts and soups -- and consumers still are more than willing to pay them.

The Golden Valley-based food giant said Wednesday that its fourth-quarter sales and profit are coming in higher than expected, and its shares rose 3 percent.

General Mills Inc. increased prices and added marketing for Yoplait and Fiber One yogurts and lower-salt Progresso soups to counter rising grain and fuel expenses. Corn prices have surged 71 percent this year while oil has jumped 42 percent, resulting in higher costs to make and transport food.

"General Mills is finally seeing the benefit of price increases," said Janna Sampson, who helps manage $1.6 billion at Oakbrook Investments. The Lisle, Ill.-based firm sold its General Mills shares earlier this year and held 93,645 shares of larger Kellogg Co. through March.

Sales for the quarter ended May 25 climbed 13 percent, General Mills said Wednesday in a prepared statement. Analysts had expected a 7 percent increase. Profit excluding commodity trading is expected to rise to about 73 cents a share. Analysts' average estimate was 68 cents a share.

Shares of the company, the second-largest U.S. cereal maker, climbed $1.91, or 3.1 percent, to close at $62.64, their biggest gain since August. The shares have gained 9.9 percent this year.

Looking forward to fiscal 2009, General Mills expects to generate continuing sales and earnings growth that "meets or exceeds" its long-term targets. It pegged earnings at $3.78 to $3.83 a share, in line with analysts' estimate of $3.81.

General Mills Chief Executive Ken Powell has said he is confident in his company's ability to continue raising prices when needed. The company reduced the size of some cereal boxes last year, resulting in a price increase of as much as 4 percent.

Including commodity trading, the cereal maker expects to earn 53 cents a share in the fourth quarter. Full financial results will be released Wednesday.

For the year, sales advanced 10 percent to $13.7 billion, the biggest annual gain since General Mills bought Diageo PLC's Pillsbury unit in 2001.

Corn futures reached a record $7.915 on Monday after excessive rain flooded fields in the Midwest. Wheat has increased 4.2 percent in 2008.

Dow Jones News Service contributed to this report.

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CHRIS BURRITT

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