General Mills Third Quarter in the Green

General Mills Inc.'s (GIS) fiscal third-quarter earnings rose 1.8% as the maker of Cheerios cereal sold more products in its base business, as measured by weight, for the first time in two years, a sign the packaged-food industry is continuing its steady, but, slow improvement.

Excluding acquisitions like Brazilian food company Yoki Alimentos SA, General Mills sales rose 2%, including a one-percentage-point contribution from higher sales volume, a closely watched metric that had been down each quarter since the third quarter of 2011.

The prolonged volume slump came after General Mills saw costs rise faster than they had in at least 30 years, forcing the company to take significant price increases.

With annual cost increases mitigating, General Mills and other food companies have tamed price increases and started to see sales volumes recover, albeit slowly. General Mills has selectively lowered prices even in some categories, like on its U.S. yogurt business, and increased in-store merchandising to spur sales as well. "As we have lapped that pricing -- and fine-tuned our pricing -- we've seen that volume recover steadily over the year," General Mills Chairman and Chief Executive Ken Powell said in an interview.

General Mills results topped expectations of Wall Street analysts, but issued a downbeat view for fourth-quarter profit, as it plans to step up marketing spending to back the launch of more new products and sees higher supply-chain costs. Still, results were enough to lift shares, which were up 2.7% in recent trading to $47.67, just short of an all-time high hit earlier.

General Mills' U.S. sales are being buoyed by new increased sales of snacks, baking products and soups, but two of its largest categories, cereal and yogurt, continue to slump. In the latest quarter, cereal sales fell 2% and yogurt sales fell 4%.

General Mills continues to launch new products in both categories to try to fix sales, which are being hurt as consumers try new products, like Greek yogurt, for breakfast. While Yoplait yogurt sales were still down, the drop was less than the prior quarter, as products like Greek yogurt with 100 calories are picking up steam.

Cereal, meanwhile, is introducing new products like Cheerios Medley Crunch, which mixes regular cheerios with wheat flakes and nut clusters, as well as increasing merchandising levels to try to recapture some lost market share to Kellogg Co. (K).

For the quarter ended Feb. 24, General Mills reported a profit of $398.4 million, or 60 cents a share, up from $391.5 million, or 58 cents a share, a year earlier. Excluding items such as mark-to-market valuation and restructuring costs, adjusted earnings rose to 64 cents from 55 cents.

Revenue jumped 7.5% to $4.43 billion.

Source; Dow Jones Newswires

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