General Mills 1Q profit jumps as costs fall

PORTLAND, Ore. — General Mills Inc., the maker of Cheerios and Yoplait yogurt, said Wednesday that its fiscal first-quarter profit surged 51 percent as ingredient costs fell and demand for its products remained strong.

The food maker said it doesn’t expect costs for ingredients used in its products to rise in the near term — meaning some price stability for shoppers and continued profitability for the company and its investors.

“This market is working well, it’s sustainable and so we’re sticking with it,” General Mills CEO Ken Powell said.

The Minneapolis-based company’s results exceeded Wall Street expectations, and the company raised its outlook for the full year, sending shares up in trading Wednesday.

General Mills said earned $420.6 million, or $1.25 per share for the quarter that ended Aug. 30, up from $278.5 million, or 79 cents per share, a year earlier.

Excluding an expense related to commodity positions, profit was $1.28 per share, well above the $1.03-per-share estimate of analysts polled by Thomson Reuters.

Sales volume remained strong, helped in part by consumers eating at home more often. Revenue for the quarter grew 1 percent to $3.52 billion with strong sales of cereal and Pillsbury products, which jumped 9 percent and 12 percent, respectively. Wall Street expected revenue of $3.49 billion.

Food makers, in general, are benefiting from lower costs for fuel and key ingredients such as wheat and corn. Commodity prices hit record highs last year and many companies raised their prices to cope. Now that those costs have fallen, companies that haven’t cut their prices are seeing their profits rise.

Don Mulligan, the company’s chief financial officer, said General Mills kept its price hikes modest as commodity costs soared and it never fully passed those cost increases on to customers. In the most recent quarter, its aggregate prices rose 1.5 to 2 percent — in line with or below competitors’ increases, he said.

The company also said higher productivity rates at its plants helped boost profitability during the quarter.

Retailers have called on some foods makers to pass on the savings they’ve seen as commodity prices receded.

But General Mills is in a unique position, some analysts said, holding the top brands in many of its categories. So it plays a big role in driving overall sales for grocers and hasn’t been the object of price cut demands.

General Mills executives would not discuss specific pricing strategies for the coming year but said customers should expect some stability.

Jack Russo, a senior consumer analyst at Edward Jones, said the results were impressive and hinged on lower commodity costs. And he said General Mills remains well positioned for the coming year with strong, innovative products that are focused on health. Based on the first quarter’s results, he said, the company may even have underestimated its potential for 2010 in its guidance.

“They are right in the sweet spot,” he said.

General Mills raised its 2010 adjusted profit to a range of $4.40 to $4.45 per share, up from $4.20 to $4.25. Analysts forecast net income of $4.26 per share for the year.

Shares of General Mills rose $2.93, nearly 5 percent, to close at $63.90 Wednesday.

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AP Retail Writer Michelle Chapman contributed to this story from New York.