General Mills raises cereal prices as profit falls

The maker of Yoplait Yogurt, Wheaties cereal and Pillsbury Toaster Strudel said its fourth-quarter profit dropped 17 percent. But the profit still met Wall Street expectations and its revenue beat them, and it reaffirmed its guidance for the full year. Much of the profit drop was due to a hedge against ingredient prices that turned against the company during the quarter.

The company said it expects supply chain expenses to rise another 9 percent in the fiscal year that will run through May 2009.

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

Foodmakers like General Mills are vulnerable to inflation on several fronts. Costs are up for raw ingredients like wheat and oats, for natural gas to run their food-making operations, and for the diesel to haul their products around.

General Mills has been fighting that by streamlining its operations. On Wednesday Chairman and Chief Executive Ken Powell said General Mills has reduced trips between warehouses by trucking food directly to retailers. And it saved about $1 million a year by reducing the number of pretzel varieties in its Chex Mix from 14 to three.

"The consumer didn't really mind that we did that, but those kinds of things save a lot of money in the manufacturing process," Powell said.

He said General Mills will focus on those kinds of productivity improvements, but price increases could be part of the mix, too. He said General Mills raised cereal prices this month; competitor Kellogg Co. raised the price-per-ounce of its cereal last week.

General Mills shares dropped 90 cents to $61.50 in afternoon trading Wednesday.

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 earlier. Excluding losses on commodity positions, General Mills Inc. would have earned 73 cents per share. The company recorded a $111 million loss on commodity hedges because prices in some commodities--especially wheat--declined during the quarter.