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General Mills Profit Edges Down On Rising Costs


General Mills, Inc. (GIS) reported Wednesday a profit for the third quarter that edged down from last year as continuing rise in commodity costs ate into its margins. The branded foods giant noted that its fiscal 2012 is seeing the highest level of commodity inflation in 30 years.

Adjusted earnings per share for the quarter missed analysts' expectations by a penny, while quarterly revenues topped their estimates by a whisker amid strong contribution from the acquired French yogurt maker Yoplait.

The company also said it expects to deliver record sales and profit, and confirmed its fiscal 2012 adjusted earnings forecast range of $2.53 to $2.55 per share, with Street currently looking $2.54 per share. In mid-February, General Mills had lowered its outlook for adjusted earnings from the original range of $2.59 to $2.61 per share.

Like most packaged food companies, General Mills is witnessing improvement in sales with economic uncertainties forcing families to stick largely to eat-at-home habit. However, higher commodity costs and other production necessities like fuel continue to hit margins of the company.

General Mills' gross margin percentage for the third quarter contracted 260 basis points to 36.6 percent, reflecting higher commodity costs and the change in business mix to include the Yoplait acquisition. To an extent, this impact was offset by price increases.

The company acquired a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent interest in Yoplait Marques S.A.S. for $1.2 billion in July 2011.

"Our third-quarter results reflect strong worldwide sales growth for our business, but the 10-11 percent input cost inflation we're experiencing this year pressured our margins," Chairman and CEO Ken Powell said in a statement.

The Minneapolis, Minnesota-based maker of Cheerios and Fiber One cereals reported net earnings of $391.5 million or $0.58 per share for the third quarter, slightly lower than $392.1 million or $0.59 per share in the prior-year quarter.

Excluding items, adjusted earnings for the quarter edged down to $366.4 million or $0.55 per share from the year-ago quarter's $371.1 million or $0.56 per share. On average, 15 analysts polled by Thomson Reuters expected the company to earn 0.56 per share. Analysts' estimates typically exclude special items.

Net sales grew 13 percent to $4.12 billion from $3.65 billion in the same quarter last year, and topped fourteen Wall Street analysts' consensus estimate of $4.07 billion by a whisker. Yoplait acquisition contributed 8 percentage points of net sales growth.

U.S. retail net sales grew 3.8 percent to $2.61 billion, and consolidated international sales surged 51.3 percent to reach $1.04 billion, helped by 43 percentage-points growth from the Yoplait acquisition. Net sales for the bakeries and foodservice increased 5.7 percent to $469 million from last year.

Looking ahead, the company expects to "generate continued good sales momentum" in the fourth quarter and anticipates gross margin contraction to ease.

GIS closed Tuesday's regular trading session at $38.76, up $0.24 on a volume of 4.08 million shares, lower than the three-month average volume of 4.20 million shares. In the past 52-week period, the stock has been trading in a range of $34.64 to $41.06.

by RTTNews Staff Writer

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