General Mills Inc posted a higher-than-expected quarterly profit and raised its full-year forecast on Wednesday as consumers bought more cake mixes and frozen pizzas to save money. Shares of the maker of Cheerios cereal, Betty Crocker baking mixes and Green Giant vegetables rose more than 2 percent to an all-time high.
Cash-strapped US consumers have started to make more meals at home rather than dine out, a trend that has benefited food companies. The shift has already boosted sales and should continue over the next few quarters, UBS Equity Research analyst David Palmer said in a research note.
Palmer, who has a "buy" rating on General Mills, said consumers might also start buying more groceries for breakfast and lunch rather than grabbing meals on the go, which could drive up sales at General Mills and rival Kellogg Co.
General Mills' earnings fell 3.6 percent to $278.5 million, or 79 cents a share, in the first quarter ended on August 24 from $288.9 million, or 81 cents a share, a year earlier. Excluding the effect of commodity hedging, earnings rose 19 percent to 96 cents per share and beat the analysts' average forecast of 87 cents, according to Reuters Estimates. Sales rose 14 percent to $3.5 billion, topping analysts' estimates of $3.3 billion.
Sales increased 25 percent at the company's US baking products division, 19 percent at the Yoplait yogurt division and 10 percent for breakfast cereals. "Already, breakfast away from home is slowing and restaurant breakfast traffic was flat in the June quarter for the first time since 2004," Palmer said in a research note.
COMMODITY INFLATION: Like many food companies, General Mills has been hit by soaring prices for grains and other commodities, although those prices have begun to decline a bit in recent weeks. The company has raised prices and taken a variety of actions to offset some of those cost increases, while still investing in marketing and new product development. In June, General Mills said it would introduce 300 new products this year.
General Mills still estimates that its costs will rise 9 percent this year, Chief Executive Ken Powell said. The company said it would record a gain on the sale of its Pop Secret microwave popcorn business to Diamond Foods Inc in the second quarter. Excluding that gain and assuming no impact from the valuation of commodity positions, General Mills now expects to earn $3.81 to $3.85 per share this year, up from a prior target of $3.78 to $3.83. Analysts were expecting $3.84.
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