General Mills 3Q Profit Rises 7 Percent
MINNEAPOLIS (AP) _ General Mills Inc., the nation's second-largest cereal maker, said Thursday its third-quarter profit rose 7 percent, beating Wall Street estimates, even as operating profit was flat in its largest divisions.
The maker of Cheerios and Wheaties cereals and Yoplait yogurt said net income grew to $246 million, or 68 cents per share, from $230 million, or 58 cents per share, a year ago. Both quarters included a restructuring charge of 1 cent per share, while the prior year was lowered by 15 cents per share for accounting and expense matters.
Revenue rose 3 percent to $2.86 billion from $2.77 billion last year.
Analysts surveyed by Thomson Financial expected earnings per share of 65 cents on revenue of $2.85 billion.
The Golden Valley, Minn.-based company said earnings for the latest quarter were restrained by higher costs for commodities, fuel, employee benefits and advertising.
Sales growth in its three divisions didn't translate into much profit growth, though, with operating profits of $479 million unchanged from last year.
In its largest segment, U.S. retail sales, operating profits were flat at $420 million. International operating profits jumped 16 percent to $37 million, but profits dipped 8 percent to $22 million in its bakery and food service unit, which supplies bread products to restaurants.
Analyst Terry Bivens of Bear, Stearns & Co. said he wonders why General Mills stays in that business considering the apparent difficulty at making it profitable. He asked General Mills executives about that on a conference call Wednesday.
Chief Financial Officer Jim Lawrence said the bakeries and food service unit is a way to keep making money from customers even when they eat away from home. He said he thinks General Mills can wring higher profit margins from that business.
``They seem pretty optimistic that they can sharply increase the margins in that business,'' Bivens said in an interview later. ``I'm a little skeptical there. We'll see.''
General Mills repeatedly cited the increased costs for fuel, employee benefits, and advertising as a factor in its results, and said they would affect the fourth quarter, too.
Bivens said that didn't worry him. All food makers are wrestling with higher employee and fuel costs, which increase the expense of shipping their goods. And he said the advertising expense is supporting new products like Yogurt Burst Cheerios and new versions of Total.
``They've kind of gotten back on the horse in terms of some pretty strong new product innovation, which traditionally drives growth in the cereal category,'' he said.
The company reiterated its full-year outlook for earnings of $2.80 to $2.85 per share. Analysts estimate full-year earnings per share of $2.91.