General Mills Inc posted a 50 percent increase in quarterly profit and raised its full-year forecast, helped by strong sales of higher-margin products such as Cheerios and Fiber One cereals.

The company's shares rose nearly 1 percent as General Mills managed to beat Wall Street profit expectations even after raising its advertising spending by 37 percent.

General Mills, like most food companies, has benefited from easing commodities costs and price increases it posted in the past year, while sales have risen as consumers eat more meals at home to save money.

The company has focused for some time on improving margins with cost cuts and developing new products that can command higher prices.

They are one of the standouts in the packaged food industry, Morningstar analyst Erin Swanson said. They have been a very efficient operator.

The maker of Cheerios cereal, Progresso soup and Yoplait yogurt said profit rose to $565.5 million, or $1.66 a share, in the fiscal second quarter ended November 29, from $378.2 million, or $1.09 a share, a year earlier.

Excluding a gain from commodity hedges, earnings were $1.54 a share. Analysts on average forecast $1.45, according to Thomson Reuters I/B/E/S.

Sales rose 1.7 percent to $4.08 billion as a 4 percent increase in the U.S. retail segment, the company's largest business, helped offset a 16 percent decline in the bakeries and food service unit.

Volume rose 2 percent in the U.S. retail business at a time when some companies have seen that measure of products shipped fall amid pressure from lower-priced competitors.

Sales of Big G label cereal, which includes Fiber One, Chex and Cheerios, rose 10 percent.


Food companies in recent months have been spending more on so-called trade spending, increasing money they give retailers for promotions such as special lower prices.

General Mills initially expected to keep trade spending flat this year, but now expects spending to be up modestly over last year as it increases promotional spending in some categories to protect market share.

It's very selective and very measured, CEO Ken Powell said in an interview. There's some areas now where we don't think we are fully competitive. He did not name those categories.

Investors have been concerned that promotional spending by food companies will get out of hand, cutting into margins.

General Mills said gross margin rose to 41.2 percent in the quarter from 37.1 percent a year earlier, excluding changes in the market value of commodity positions.

The company forecast fiscal 2010 earnings of $4.52 to $4.57 a share excluding items. In September it had forecast $4.40 to $4.45 per share.

General Mills shares rose 57 cents to trade at $68.86 on Thursday on the New York Stock Exchange. The stock is up more than 13 percent this year, compared with a 19 percent increase for rival Kellogg Co .

(Reporting by Brad Dorfman; editing by John Wallace, Dave Zimmerman and Andre Grenon)