Commodities play havoc with General Mills profit

Even a 17 percent profit drop in the fourth quarter didn't dampen the mood at General Mills.

Sales were up almost 10 percent for the year, to $13.7 billion, for the maker of Cheerios, Progresso Soups and Yoplait yogurts, but the wildly fluctuating commodity markets meant a loss in operating profit, as accountants revalued the company's market positions and inventories of wheat and corn.

That change in the books was significant, but it wasn't a cash loss.

"We didn't actually lose any money," spokesman Tom Forsythe said.

But the explanation didn't sway Wall Street, as shares fell 1.94 percent to $61.19.

General Mills raised prices on many of its products in recent months -- cereals and soups went up just in the past couple of weeks -- to offset the rising prices of energy and grains. More price increases are on the horizon, CEO Ken Powell told analysts in a morning call Wednesday.

The company earned $185.2 million, or 53 cents per share, for the quarter ended May 25 when the impact of its commodity positions and inventory is included; exclude those items and the company saw a 73 cent gain -- an 18 percent jump from last year's fourth quarter gain of 62 cents per share. Sales were $3.47 billion, up 13.4 percent from the year-ago period.

"This kind of thing would always have been there in the past, but it would not have been as big a number," Forsythe said.

Annual sales were up for each of the company's three main segments, with U.S. retail up 7 percent, to $9.1 billion, the international segment up 21 percent, to $2.6 billion and bakeries and food service up 11 percent, to $2 billion. The company's Cereal Partners Worldwide joint venture with Nestle saw sales rise 23 percent.

Earnings for the year climbed 13.2 percent, to $1.29 billion.

The company said in its earnings statement that it expects a 9 percent increase in supply chain costs this year. Still, General Mills expects growth of 7 to 9 percent for the coming year, with earnings expected to reach $3.78 to $3.83 per share.

The company also expects to introduce 300 products in the coming year, Powell added.