General Mills Reports 38 Percent Earnings Rise

Sep. 23–Yo, yogurt!

General Mills reported a 38 percent rise in earnings Thursday, led by a big jump in Yoplait yogurt sales, and signs of recovery in a cereal line that now includes yogurt-flavored Cheerios.

General Mills shares rose $1.51 Thursday, as first-quarter profits easily beat analysts’ estimates. But happiness was muted at the nation’s No. 2 cereal-maker by a 6 percent drop in cereal sales volume, and concern over rising energy costs.

Still, month-by-month figures show that cereal sales are recovering some market share, officials said, as earlier price increases are digested, low-carb diets fade in popularity, and consumers reconsider the company’s “Big G” cereal brands, now that all are made with whole grain.

“I think the whole-grains story has been a major factor in the rebound we’ve seen,” Chief Executive Stephen Sanger said in an interview. And unlike the low-carb Atkins diet, the whole-grains trend “will be something that will last a while,” he said.

The clear star of the quarter was Yoplait, which had a 19 percent increase in sales, due to the popularity of Yoplait Lite fat-free yogurt and the introduction of new chocolate mousse flavors.

“They’ve done a great job with Yoplait, innovating in that category,” analyst Doug Asiello of AIM Investments told Bloomberg News. But he added, “It’s fair to say Mills has stubbed its toe” by being “more aggressive than it needed to be with cereal pricing.”

In 2004 the company raised cereal prices more than 4 percent. Officials conceded that right after the price increase, retailers backed away from promoting the General Mills line, including Wheaties, Chex and Lucky Charms. But now, said Sanger, “We’re not hearing that anymore.”

The company recently introduced seven new cereal products, including two types of Yogurt Burst Cheerios, and a new Vanilla Yogurt Total. Sanger said officials “expect a better cereal performance from here on out.”

For the quarter, the company reported $2.6 billion in sales, an increase of 3 percent from a year earlier. International business led the way, with an 11 percent sales increase to $446 million. Measured by volume, domestic sales were flat.

After-tax earnings were $252 million, or 64 cents a share; analysts had anticipated earnings of about 56 cents.

Lower interest expenses, a drop in restructuring costs and 26 million fewer shares outstanding — the result of company buybacks — all contributed to the improved earnings, officials said.

Looking ahead, Sanger cautioned that Hurricane Katrina, and now Hurricane Rita, could affect second-quarter results because of their affect on energy costs, and perhaps “some spot disruption” of transportation. But in terms of “availability as far as basic materials, ingredients and so forth, we have not yet seen any impact,” Sanger said.

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