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General Mills profit beats estimates, shares rise

By Brad Dorfman
/ Source: Reuters

By Brad Dorfman

CHICAGO (Reuters) - General Mills Inc posted a higher-than-expected quarterly profit and raised its full-year earnings forecast, helped by strong sales of products like its breakfast cereals in the United States, sending its shares up 4.3 percent.

General Mills has counted on a steady stream of new products and cost-cutting measures, as well as higher prices, to lift profits. The maker of Cheerios cereal and Progresso soup has also benefited as consumers eat more meals at home to save money amid the recession, and as prices for commodities like wheat decline.

Morningstar analyst Erin Swanson said the company has managed to boost sales and reap costs savings consistently from quarter to quarter.

"They have the portfolio that seems prone to take advantage of the consumer trends that we are seeing right now, both health and wellness and the trend of consumers eating at home," Swanson said of a brand list that also includes Yoplait yogurt and Cascadian Farms organic foods.

The company has been gaining market share in cereal, soup and other categories, with new products like high-fiber soups and a Yoplait frozen smoothie kit helping it stave off private-label competitors.

General Mills also has not raised prices in more than a year in 12 of its top 15 categories, CEO Kendall Powell said during an interview.

General Mills on Wednesday said profit rose to $420.6 million, or $1.25 a share, in the first quarter, ended August 30, from $278.5 million, or 79 cents a share, a year earlier.

Excluding changes in the market value of commodity hedges the company holds, earnings were $1.28 a share. Wall Street analysts had forecast $1.03, according to Reuters Estimates.

Sales rose less than 1 percent to $3.52 billion, compared with a 14 percent increase a year ago. The stronger dollar, which lessens the dollar value of sales outside the United States, cut 2 percentage points from sales.

U.S. retail sales rose 6 percent to $2.42 billion, boosted by a 9 percent increase in sales of its Big G cereals, which include Cheerios, Fiber One, Trix and other brands.

The company said it now expects full-year earnings of $4.40 to $4.45 a share, excluding one-time items, up from a previous forecast of $4.20 to $4.25. Analysts on average forecast $4.27, according to Reuters Estimates.

While commodity costs were down in the quarter, General Mills said it still expects low-single-digit inflation for the year.

It said it plans to use some of the first-quarter earnings increase to raise spending on marketing.

The General Mills earnings report comes as Kraft Foods Inc is trying to acquire chocolate maker Cadbury Plc , a major deal that Cadbury has so far resisted.

Powell said he understood the strategic reasons for the Kraft bid, but said he did not know if it would usher in a new wave of consolidation in the food industry. General Mills is focused more on smaller deals, he said.

"For us, our interest is in smaller, bolt-on acquisitions that can expand our categories in the U.S. and around the world," Powell said.

General Mills shares rose $3.00 to $63.97 in morning trade on the New York Stock Exchange.

(Reporting by Brad Dorfman; editing by Lisa Von Ahn, Maureen Bavdek and John Wallace)