US: Cost concern hits General Mills shares

• General Mills expects input costs to increase 10-11%
• FY2010 sales and profits rose
• Shares down in pre-market trading

Anxiety over the input costs facing General Mills has hit shares in the US food company today (29 June) after it forecast "significantly" higher ingredients and energy prices over the next 12 months.

In pre-market trading, shares in General Mills fell by more than 2% after chairman and CEO Ken Powell said the Progresso soups maker expects input costs to rise by 10-11% in the its next financial year.

Powell insisted General Mills expected fiscal 2012 to be "another good year of sales and earnings growth" but added: "Our business plan assumes significantly higher costs for ingredients and energy. We're estimating 2012 input cost inflation of 10-11%."

General Mills' Holistic Margin Management initiative - which includes cost cuts and price increases - boosted margins over the last 12 months but Powell warned the strategy might not be enough to offset the looming rise in commodity costs.

"We expect our HMM discipline of cost savings, mix management and price realization to largely - but not completely - offset this cost pressure. We believe the operating environment in many developed markets will remain challenging over the next 12 months," he said.

Powell was speaking as General Mills issued its annual results for the 12 months to 29 May.

Net earnings were up 18% to US$1.8bn boosted by a mark-to-market valuation on certain commodity positions and some tax items. Diluted earnings per share rose 20% to $2.70, although excluding the mark-to-market commodity impact and the tax items, EPS was up 8% at $2.48.

The company's net sales climbed 2% to $14.9bn thanks to a 7% rise in international sales. General Mills' US retail sales "generally matched" last year's total and stood at $10.2bn, the company said.

For fiscal 2012, General Mills has forecast for diluted EPS of $2.60-2.62 before any effects from mark-to-market valuations. According to Bloomberg, analysts projected $2.68.

General Mills shares were down 2.04% at $36.45 at 08:59 ET.

For the full statement from General Mills, click here.