General Mills 2Q profit falls on higher costs

PORTLAND, Ore. (AP) — General Mills' net income fell 28 percent during the second quarter as revenue gains could not keep pace with rising costs.

The company maintained its full-year guidance and said it expects strong sales and profitability gains in the second half of the fiscal year. However, it cautioned that its gross margins would be lower during that time given continued cost pressures and its recent acquisition lower-margin Yoplait.

General Mills, which makes foods such as Cheerios cereal, Nature Valley granola and Hamburger Helper, remains one of the most popular food brands in grocery stores. But like most of its peers, it has struggled with higher costs for everything from ingredients to labor. The company forecast inflation cost increases of 10 percent to 11 percent for the year and has raised its prices to offset that pressure.

General Mills reported Tuesday that it earned $444.8 million, or 67 cents per share, for the quarter ended Nov. 27. That's down from $613.9 million, or 92 cents per share, a year earlier. Excluding charges tied to its Yoplait deal and other items, earnings were 76 cents per share.

Analysts polled by FactSet anticipated the company would earn 79 cents per share. The miss sent shares down in trading Tuesday.

Revenue rose 14 percent to $4.62 billion. Analysts forecast revenue of $4.6 billion.

"We knew it was going to be a tough environment and it is but the year is shaping up as we anticipated," said Don Mulligan, the company's chief financial officer.

The company, based in Minneapolis, saw its biggest revenue jump in its international business during the quarter. General Mills, which already distributed Yoplait products in the U.S., announced in July that it was acquiring a controlling stake in international yogurt maker Yoplait. This was the first full quarter with the yogurt brand under its ownership, which boosted its international sales by 55 percent.

Revenue at its bakeries and food service division increased 12 percent with strong sales of products such as Pillsbury Mini-Pancakes and French Toast. Revenue from its U.S. retail business increased 3 percent on strong sales of cereal and snacks but it saw weaker sales of yogurt and some baking products with higher prices.

For the full year, General Mills still expects adjusted earnings of $2.59 to $2.61 per share; analysts anticipate $2.61 per share.

General Mills Inc. said it expects to drive its gains on the addition of the Yoplait business and introduction of new products, such as Dulce de Leche Cheerios and Greek yogurt. It also expects some costs to level out as the year progresses.

Edward Jones analyst Jack Russo said that while the company struggled with intense pressure this period, all signs point to business improving in the second half of the year as sales trends continue to improve, its new product lineup is strong and its price hikes are already in place.

"I think there is a lot to look forward to," he said. "They are well trusted in the sector."


AP Business Writer Michelle Chapman contributed to this report from New York.

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