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Tough times seem to benefit General Mills

Cereal for dinner? It's a tough reality for some cash-strapped people.
/ Source: The Associated Press

Cereal for dinner? It's a tough reality for some cash-strapped people.

Rising popularity of cereal among those looking for a cheap meal combined with plunging ingredient costs to boost the second-quarter profit of Cheerios maker General Mills Inc. 50 percent.

The maker of Green Giant, Hamburger Helper and Yoplait yogurt also boosted its full-year earnings guidance for the second time in three months following the strong quarter.

The increase is a sign of the economic stress still facing families amid high unemployment who want to cut spending and save time, but don't want to rely on fast food. Food banks are seeing rising demand for cereal as people try to find a nutritious meal that costs as little as possible. That's blurring lines between traditional meals.

Revenue from General Mills' Big G cereal line rose 10 percent in the quarter ending Nov. 29. The company, based in Minneapolis, said it saw better sales of Chex, Cheerios and Fiber One.

More people are eating at home in the recession to save money, and meals outside of breakfast more often include cereal, said Jack Russo, an analyst for Edward Jones.

Kellie Hotz and her husband, Jeff, eat cereal for dinner three times a week as they struggle to stretch their budgets and care for a toddler. Hotz said cereal is less expensive than fast food, so she keeps a dozen boxes on hand.

"It's the fastest, easiest and at least somewhat half-nutritious thing to do during the weekdays," said Hotz, 29, of Arlington Heights, Ill.

Breakfast foods such as eggs are popular now all times of the day because they're quick, nutritious and inexpensive, said Christopher Shanahan, a research analyst with Frost & Sullivan.

"The lines of when to eat breakfast, when to eat dinner, when to eat lunch have been slightly blurring," he said.

General Mills CEO Ken Powell did not think "breakfast for dinner" was as prevalent but said consumers are looking for more value. He said less than 10 percent of the company's cereal is consumed outside of breakfast time.

"I think the consumer is value-seeking," he told The Associated Press in an interview. "I think that that's clear, although it plays out in more ways than you would think."

Food banks across the country are clamoring for cereal to hand out to families, who are increasingly seeking out food assistance.

Cereal is the top priority for Gary Knuth, who coordinates food donations and purchases for the Northern Illinois Food Bank. On Thursday, he put in a bid for a truckload of Shredded Wheat in Iowa.

"You can give one box to a family and feed a number of people," he said. "It goes a long way, and it fills a lot of bellies with good stuff."

General Mills and Kellogg Co. also have been donating cereal to Feeding America, the country's largest hunger-relief charity.

The recession has benefited food makers of all types, but analysts say General Mills is among the best performing because it has cut costs and is focused on health and wellness products, which resonate with consumers right now.

General Mills boosted its ad spending by 37 percent in the quarter, which Shanahan said is a sign it is confident the business can keep growing. The company plans spend more on advertising in the second half of the year to try to build on its gains and introduce new products like chocolate Cheerios and Greek-style Yoplait yogurt.

"They're confident there's demand out there that's unmet, that's willing to switch and willing to spend money," Shanahan said.

In the quarter ending in November, earnings climbed to $565.5 million, or $1.66 per share. Excluding mark-to-market gains on some assets, profit was $1.54 per share.

Sales increased 2 percent to $4.08 billion.

Shares set a new 52-week high in the session of $69.93. The stock rose 62 cents to $68.91 Thursday afternoon.

General Mills raised its fiscal 2010 adjusted profit outlook to a range of $4.52 to $4.57 per share, up from a previous range of $4.40 to $4.45 per share.

Analysts predict a profit of $4.52 per share for the year.