Quarterly Earnings Below Expectations for General Mills

MINNEAPOLIS — General Mills Inc. reported fourth-quarter earnings and 2006 guidance below analyst expectations on Wednesday, with the foodmaker saying price increases ended up driving cereal customers to rivals.

General Mills shares fell $3.40, or 6.7 percent, to close at $47.21 on the New York Stock Exchange.

Fourth-quarter earnings rose 65 percent to $460 million, or $1.14 per share, from $278 million, or 68 cents per share, a year ago. But the increase was driven by the $329 million General Mills got from selling businesses including its stakes in Snack Ventures Europe and Lloyd’s barbecue entrees.

Not counting those gains, an accounting rule change, debt repurchases and other items, General Mills would have earned 64 cents per share in the latest quarter. Revenue was $2.72 billion, down about 3 percent from last year, which included an extra week.

Analysts surveyed by Thomson Financial were looking for 65 cents per share on revenue of $2.69 billion.

Analyst Eric Katzman with Deutsche Bank said he had a “hold” rating on General Mills and an earnings estimate lower than most analysts, “but even ours doesn’t appear to have been low enough.”

The company said results were hurt by a fourth quarter that was one week shorter than last year.

The company’s 2006 guidance didn’t include an earnings-per-share figure. But it said earnings would fall 8 percent to 10 percent from the $3.08 it earned in 2005. Not counting unusual items, the company said it would have earned $2.67 per share, and it predicted 2006 earnings 7 percent to 8 percent above that — or $2.86 to $2.88 per share.

Analysts were predicting 2006 earnings of $3.13 per share on sales of $11.56 billion.

When commodity prices rose last year, General Mills responded by raising cereal prices, chairman and chief executive Steve Sanger said. Shipments of cereals such as Lucky Charms and Wheaties dropped by 5 percent for the year.

Sanger said General Mills will turn that around by offering more promotions to reduce the price on its cereals and by adding new products such as new flavors of Whole Grain Total.

“I think we’ll get that fixed. Price differences like that . . . tend to be temporary,” Sanger said.

He said they expect the commodity price increases that hurt profits last year to be much smaller this year. And sales in many key products were picking up toward the end of fiscal 2005, he said.

“We’re showing good sales momentum in most of our categories; the only exception to that is ready to eat cereal,” he said in an interview.