Cereal maker General Mills Inc
Packaged foods makers have benefited as consumers stayed home to save money. General Mills Chief Executive Kendall Powell said that trend sped up during the recession, though consumers had been eating more meals at home for the last several years.
The new norm is they have shifted more in favor of food at home, Powell said in an interview.
But in recent months consumers appear to be loosening their purse strings to a certain extent. On Tuesday, restaurant chain operator Darden Restaurants Inc's
A lot of folks are at a crossroads trying to figure out if this economy is starting to pick up some momentum, Edward Jones analyst Jack Russo said.
Aggressive price cutting in the food industry by retailers could also pressure companies like General Mills, who have been able to hold on to much of the increases they took when commodity prices jumped in 2008.
General Mills, which also makes Yoplait yogurt and Progresso soup, posted a profit of $332.5 million, or 96 cents a share, for the third quarter that ended February 28, compared with $288.9 million, or 85 cents a share, a year earlier.
Excluding one-time items, earnings were 97 cents a share. Analysts on average had forecast 93 cents, according to Thomson Reuters I/B/E/S.
For the year, General Mills raised its earnings view to a range of $4.57 to $4.59 a share, excluding one-time items. That compares with its previous forecast of $4.52 to $4.57 and with analysts' estimates of $4.60.
Shares in the company fell 1.6 percent to $72.42.
WEAK SOUP SALES, CEREAL STRONG
Overall sales rose 2.6 percent to $3.63 billion sales and U.S. retail sales of the company's signature cereals rose 6 percent, General Mills said. Analysts had expected sales of $3.62 billion.
The company saw lower sales of Progresso soup, which led to flat volume and pushed sales in its meals division down 2 percent. Lower sales of soup have a larger effect on volume, which is measured in pounds, because cans of soup weigh more than boxes of cereal.
The soup season was also weak for the largest competitor, Campbell Soup Co
Meals were 21 percent of General Mills' U.S. retail business in fiscal 2009, while BIG G cereals were 23 percent.
Another issue for grocery manufacturers is a battle for market share by retailers. Wal-Mart Stores Friday
Powell said General Mills would respond to the competitive environment with more promotions if needed. It has used cost savings to help lift advertising and marketing spending, which rose 33 percent in the quarter.
Increasing investments in advertising and marketing should aid near-term sales growth, Morningstar analyst Erin Swanson said.
General Mills is seen by analysts as a leader in cost cutting in the food industry, with such steps as finding a source of rice closer to its Chex cereal plant reduce transportation costs. Gross margin rose to 38.1 percent in the quarter, excluding one-time items, from 34.1 percent a year earlier.
(Reporting by Brad Dorfman; Editing by Michele Gershberg, Lisa Von Ahn, Maureen Bavdek and Gunna Dickson)