General Mills profit falls, but matches outlook

General Mills Inc. said costs for hedging commodities drove its fourth-quarter profit down 17 percent, but strong sales of yogurt, cookie mixes and Cheerios boosted revenue above Wall Street expectations.

The company said Wednesday it expects supply-chain expenses to rise another 9 percent in the current fiscal year, and said price increases are possible.

"Input cost inflation will remain a significant challenge for us," with the biggest increase coming early in the fiscal year, Chief Financial Officer Donal Mulligan said on a conference call.

For the quarter that ended May 25, the Golden Valley-based foodmaker's net income fell to $185.2 million, or 53 cents per share, from $224.1 million, or 62 cents, a year ago. Excluding losses on commodity positions, General Mills Inc. would have earned 73 cents per share.

Sales increased 13 percent to $3.47 billion from $3.06 billion.

Analysts surveyed by Thomson Financial expected adjusted profit of 73 cents per share on revenue of $3.37 billion.

General Mills said 8 percentage points of its sales growth came from price increases and shifts toward higher-dollar products, while 3 percentage points came from selling more food. The other 2 percentage points of revenue gain came from foreign currency exchange.

Chairman and Chief Executive Officer Ken Powell said sales and operating profit grew in all three of the company's major segments, but prices for food ingredients and fuel are rising, too. Still, he said General Mills retail brands in the U.S. are growing faster than private-label brands.

That "reflects that even with price increases we've taken to partially offset higher input costs, our brands remain high-quality, very affordable choices for families," he said.

Operating profits rose 4 percent to $2 billion in General Mills' largest segment, U.S. retail. Revenue rose 7 percent to $9.07 billion. Marketing expenses rose 12 percent. Sales of Big G cereals rose 5 percent.

Operating profits in its international segment grew almost 25 percent to $268.9 million. Bakeries and Foodservice operating profits rose 11.9 percent to $165.4 million.

The company recorded a $111 million loss on commodity hedges because prices in some commodities declined between the end of the third quarter and the end of the fourth.

General Mills said profits should be between $3.78 and $3.83 per share for the year without any impact from hedging.

For the full year, General Mills earned $1.29 billion, or $3.71 per share, up 13 percent from $1.14 billion, or $3.18 per share, in fiscal 2007. Revenue rose 9.7 percent to $13.65 billion.

General Mills shares dropped 53 cents to $61.87 in morning trading Wednesday.

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AP Business Writer Jennifer Malloy in New York contributed to this report.