MINNEAPOLIS — Higher sales helped offset rising ingredient costs at General Mills, Inc., spurring the Minneapolis-based maker of Wheaties and Cheerios to a 9% gain in earnings during the third quarter.
Net income in the third quarter ended Feb. 25 was $268 million, equal to 77c per share on the common stock, up 9% from $246 million, or 69c per share, in the third quarter of fiscal 2006.
General Mills posted net sales of $3,054 million in the third quarter, which was 6% higher than the previous year’s third quarter. Total segment operating profits of $486 million were up 7% from a year ago.
"This was another quarter of broad-based sales growth and margin expansion for the company," said Steve Sanger, chairman and chief executive officer. "We’re generating a combination of good unit volume gains, favorable mix and supply chain productivity, which is helping to offset input cost inflation. As a result, we have been able to increase our level of consumer marketing investment and also raise our earnings guidance for the year."
In the U.S. Retail segment, net sales rose 5% to $2,108 million from the third quarter of fiscal 2006, driven by 5% unit volume growth. Operating profit in the retail segment totaled $447 million, up 6% from $423 million in the third quarter of fiscal 2006.
Although Big G cereal unit volume was in line with prior-year levels, sales in the segment fell 4%, reflecting year-over-year differences in the timing of price promotion activity.
But sales in the other units of U.S. retail were strong during the quarter, General Mills said. Net sales in the Snacks division grew 8%, driven by strong introductory volume for new Fiber One bars and continuing growth for Nature Valley snack bars. Strong growth also was noted in the company’s Yoplait business, which grew 9% during the quarter behind continued strong performance from Yoplait Light yogurt varieties and Yoplait Kids yogurt.
Pillsbury USA sales rose 3% during the quarter, reflecting gains on core refrigerated dough products, including Toaster Strudel and Totino’s frozen pizza rolls. General Mills’ Meals division climbed 10% in sales, led by double-digit growth for Progresso soup along with gains for Hamburger Helper dinner mixes and Green Giant vegetables.
Baking Products net sales rose 11% during the quarter, reflecting strong unit volume growth, particularly in nonmeasured channels.
In International, net sales were $510 million, up 15% from $444 million a year ago. Unit volume was up 6%, led by 5 points of growth coming from pricing and mix and 4 points of growth from foreign exchange. Operating profit grew 17% to $42 million.
Sales in the Bakeries and Foodservice segment were $436 million, up 5% from a year ago. The gain reflected 1% unit volume growth and net price realization, the company said. Segment operating profit rose 83% to $33 million, led by favorable mix and pricing.
Cash flow from operations totaled $1.15 billion through February, down 7% from $1.23 billion in the same period last year. During the quarter, General Mills said it repurchased approximately 94,000 shares of stock at an average price of $57 per share.
General Mills said earnings after tax from joint ventures totaled $16 million in the third quarter, in line with prior-year results despite a $4 million after-tax charge associated with previously announced restructuring of the Cereal Partners Worldwide manufacturing plants in the United Kingdom. Net sales for C.P.W. rose 22% during the third quarter, led by contributions from the Uncle Tobys businesses in Australia that C.P.W. acquired in July 2006. Net sales for the Haagen-Daz joint ventures in Asia increased 12%, while net sales for the 8th Continent soy beverage joint venture fell 5%.
Looking ahead to the fourth quarter, General Mills said it expects input costs, which include ingredients and fuel, to be higher than levels seen this year or those sustained last year. The company also noted it would spend more on marketing and said it has "initiated evaluations of certain assets that may result in impairment of restructuring charges."
The company raised its fiscal 2007 full-year guidance to $3.14 to $3.16 per share, up from $3.09 to $3.13 per share.