General Mills Inc., one of the nation's largest food companies, reported Wednesday that its fourth-quarter profit rose 51 percent as higher prices boosted its revenue.
However, the maker of Cheerios, Lucky Charms and other foods warned that those prices hikes will not be enough to offset higher ingredient and energy costs this fiscal year, and it issued an outlook that fell short of expectations.
Food makers have struggled with soaring costs on everything from wheat to fuel and they've raised prices to cope.
"The last 12 months was a challenging period for the food industry and for General Mills," CEO Ken Powell told investors during a conference call Wednesday morning. "Input costs swung from deflationary to inflationary, and consumers in developed markets remained cautious in an economic environment where improvement seems slow at best."
Given those conditions, the company said it was pleased with its results but expects its costs to rise 10 percent to 11 percent this year.
In fiscal 2012, General Mills anticipates earning $2.60 to $2.62 per share, with revenue growth in the mid-single-digits. That's below the $2.68 per share that analysts polled by FactSet anticipated.
The disappointing outlook sent shares down.
General Mills said it earned $320.2 million, or 48 cents per share, for the fourth quarter. That's up sharply from the $211.9 million, or 31 cents per share, it earned in the same period last year. Adjusted earnings increased to 52 cents per share from 41 cents per share, meeting analysts' average forecast, according to FactSet.
Revenue rose 3 percent to $3.63 billion, narrowly missing Wall Street's estimate of $3.66 billion.
General Mills benefited from strength overseas, where its revenue rose 16 percent. Its sales to U.S. bakery and foodservice companies rose 11 percent, while revenue in its U.S. division that sells to retailers fell 2 percent - despite price hikes - because sales volume fell.
A number of food company executives say they anticipate their price increases will lead shoppers to forgo purchases, and sales volume are likely to drop as a result.
Jefferies & Co. analyst Scott Mushkin said General Mills' estimate of up to 11 percent higher costs for the goods it buys to make its foods is the highest in the industry so far. But the company's leaders said their array of products - from Progresso Soup and Yoplait yogurt to Lucky Charms and Nature Valley granola - exposes General Mills to a wide array of commodity risks.
General Mills leaders said that in 2012 the company plans to create new products to stimulate sales and to keep products affordable.
The new forecast excludes any impact from General Mills' announced acquisition of a controlling interest in Yoplait's international business. The deal is expected to close in the first quarter.
Shares of the company, based in Minneapolis, rose 17 cents to close at $37.38 Wednesday.
Sarah Skidmore contributed to this report from Portland, Ore. Michelle Chapman contributed from New York.