General Mills Inc on Wednesday posted a higher-than-expected quarterly profit as cost-cutting measures and higher sales helped offset soaring prices for wheat and other commodities, sending its shares up almost 3 percent.
The maker of Cheerios cereal, Progresso soup and Yoplait yogurt stood by its forecast for fiscal year 2008, excluding special items, which it had raised in February. But the company said it expects to see an acceleration in cost inflation in the fourth quarter.
Like most food companies, General Mills has been hit by commodity costs that have risen well above expectations, and has passed on some of those costs to the consumer. One way has been to reduce the size of its cereal boxes, effectively raising the price per ounce.
"I know there's concern about food price inflation and the potential impact on volume and sales. We are going to continue to watch this closely, but we are encouraged by the strong demand we are seeing for our products," Chief Executive Officer Ken Powell said on a conference call. Powell said product innovation as well as a 13 percent increase in marketing spending was driving strong growth.
Net profit rose 61 percent to $430.1 million, or $1.23 a share, in the fiscal third quarter that ended February 24, compared with $267.5 million, or 74 cents share, a year earlier.
The net profit was boosted by gains from commodity hedging and a favourable court decision on a tax matter. Excluding those and other one-time items, earnings were 87 cents a share. Analysts, on average, had expected 79 cents a share, according to Reuters Estimates. "The biggest standout for me is just how strong their sales momentum is," said Edward Jones' analyst Matt Arnold.