Solid quarter, cautious forecast at General Mills

General Mills Inc. posted a decent fourth quarter Tuesday, with profit and sales hitting expectations, but the outlook for its next year fell a bit short of what Wall Street expected.

That helped send the Golden Valley food company's stock down about 4.5 percent in after-hours trading, which is often an indicator of the next day's trading pattern. General Mills results came out after the market closed on a day when the major indexes gave up about 3 percent.

General Mills, the maker of Yoplait yogurt and Green Giant vegetables, earned $212 million, or 31 cents a share, during its fiscal fourth quarter, down 41 percent from the same time last year. Adjusting for one-time items, its fourth quarter profit was 41 cents per share, in line with the expectations of analysts surveyed by Thomson Reuters.

The company's fourth-quarter sales of $3.57 billion, while down 2 percent over 2009's fourth quarter, were a bit above analysts' forecasts of $3.55 billion. But General Mills' earnings guidance for its next full year -- $2.46 to $2.48 per share -- was below the $2.50 per share analysts expected.

That likely played a role in the stock's after-hours swoon, said Jack Russo, an analyst at Edward Jones. "It's early in the year, and they're just being cautious. The fourth quarter was fine, and the year they just completed was excellent."

Stock analyst Edward Aaron of RBC Capital Markets noted that investors have particularly high expectations for General Mills because its performance has been so strong compared with its peers. "They didn't beat [analysts' forecasts] as some might have expected," he said. And Aaron noted that the firm's fourth-quarter gross profit margin, even when adjusted for one-time items, was flat year over year, while it's usually heading up.

General Mills' fourth quarter this year had one fewer week in it than last year's. When adjusted for that, the company posted a healthy 8 percent gain in U.S. sales as measured by volume. The surge was driven by strong results in its snacks unit, particularly Fiber One and Nature Valley bars, and in its cereal business, which is getting a boost from its new Chocolate Cheerios and Wheaties Fuel offerings.

There was also a flurry of promotional activity as competition heated up in the food business. That's the sort of development analysts worry could lead to sustained price fights, which are good for consumers, but bad for companies. "There was a lot of price competition in this quarter," Aaron said.

Cereal has been a particular hot spot for promotions, and it's having an effect on one of General Mills' key cereal competitors, Ralcorp Holdings, owner of the Post brand cereals. Last week, the company lowered its third-quarter earnings expectations 24 percent, citing lower returns on its own promotional spending as well as the impact of "branded competition" -- read General Mills and Kellogg -- on its store-brand cereal business.

In a conference call with stock analysts Tuesday, General Mills Chief Financial Officer Don Mulligan was asked about the promotional flurry in cereal. "There's nothing wrong with the cereal category," he said. "Volume is up, and we're fine in our positions."