General Mills Inc , forecast better-than-expected earnings for the current fiscal year, helped by new products and moderating commodity costs.

The company also posted quarterly earnings that beat analysts' average estimate as consumers continued to buy products like Pillsbury baking dough and Cheerios cereal.

The news sent General Mills shares up more than 3 percent to $57.87 in midday trade on the New York Stock Exchange.

The company said it is set to add products to its brands such as Progresso, Yoplait, and Wanchai Ferry frozen entrees.

But General Mills, which like most of food companies raised prices last year to combat then-soaring commodity coasts, said it saw little price increases in this fiscal year.

It also plans to boost marketing spending by the high-single digits as it works to polish its appeal to consumers who are cooking more to save money in the recession.

More consumers than ever are going into the grocery stores and they are looking for new ideas and innovation, General Mills Chief Executive Ken Powell said in an interview. This is a great time to launch new products. We've gone full steam ahead on innovation.

While the trend to eat at home is helping its retail segment, sales have suffered at its bakeries and food service unit, which caters to restaurants and bakeries.

For fiscal year 2010, ending in May, General Mills expects net sales to be comparable to 2009, when it posted sales of about $14.7 billion.

The company forecast earnings of $4.20 per share to $4.25 per share for the year, excluding the impact of commodity costs. Analysts had expected $3.17 per share.

At least one analyst was surprised about the food maker's outlook.

We had been expecting Mills to take a more conservative posture, said J.P. Morgan analyst Terry Bivens in a note.

The positive note from General Mills boosted its peers, Russo added. Shares of Kellogg Co and Kraft Foods were up 2.3 percent and 5.1 percent respectively.

The market is telling you today that the shares are undervalued and that things are kind of back on track here, said Edward Jones analyst Jack Russo.


General Mills' net profit was $358.8 million, or $1.07 per share for the fourth quarter that ended May 31, compared with $185.2 million, or 53 cents a share, a year earlier.

Excluding a loss on product lines it sold off in the fourth quarter and the effect of commodity costs, its profit was 86 cents a share, above the average expectation for 80 cents a share, according to Reuters Estimates.

Net sales rose 5 percent to $3.6 billion, boosted by U.S. demand for items such as cereal and Pillsbury baking products.

Sales from its international unit fell 5 percent, hurt by the impact of foreign exchange.

For fiscal 2010, General Mills forecast net sales for its U.S. retail unit to grow in the low-single-digit percentage, driven by volume rather than price increases.

The company said on June 8 that it expected the rate of U.S. retail net sales growth to moderate in 2010 from 2009 levels, when it hiked prices to counter higher commodity costs. It forecast low commodity inflation for the year.

General Mills expects its international segment to post a mid-single-digit sales increase on a constant currency basis. It expects bakeries and food service unit sales to be below 2009 levels, the company said.

General Mills shares were up $1.73 at $57.75, while Kellogg shares were up $1.09 at $47.66 and Kraft shares rose $1.40 to $26.74 on the New York Stock Exchange.

(Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Himani Sarkar, Derek Caney, Leslie Gevirtz)