General Mills Profit Dips As Commodity Costs Rise

General Mills Inc (GIS.N) posted a quarterly profit in line with Wall Street expectations and stood by its lowered full-year forecast as it faces higher costs for raw materials.

"Fiscal 2012 has represented a challenging operating environment, with the highest level of commodity inflation that we've seen in 30 years," Chief Executive Officer Ken Powell said in a statement on Wednesday.

Shares of General Mills were down 0.7 percent at $38.50 in trading before the market opened.

Powell said sales momentum in the current fourth quarter would somewhat ease the gross margin declines that hurt results in the third quarter, which ended on February 26.

The maker of Progresso soups, Cheerios cereal and Green Giant frozen vegetables said third-quarter net income had fallen to $391.5 million, or 58 cents per share, from $392.1 million, or 59 cents per share, a year earlier.

Excluding one-time items, earnings were 55 cents per share.

Analysts on average had been expecting 55 cents per share, according to Thomson Reuters I/B/E/S, after General Mills forecast a range of 54 cents to 56 cents in February.

At the time, the company cut its full-year outlook to a range of $2.53 to $2.55 per share from a prior forecast of $2.59 to $2.61, citing weak sales.

On Wednesday, the company stood by that full-year forecast.

Third-quarter net sales jumped 13 percent to $4.12 billion, helped by price increases and last year's acquisition of a controlling stake in the Yoplait yogurt brand. Excluding the acquisition, sales volume would have fallen, as some consumers were turned off by the price increases.

In the U.S. retail segment, the company's largest business, earnings fell 4 percent due to higher raw material costs, lower sales volume and higher advertising expenses.

By segment, sales rose in cereals, baking products, snacks and simple meals, were flat for Pillsbury USA and fell at Yoplait, which has suffered from increasing competition from Chobani and other Greek yogurt brands.

General Mills has said commodity costs have increased in the 10 percent to 11 percent range in fiscal 2012 due to higher prices for ingredients like grain.

REUTERS