US: Costs weigh on General Mills Q3 profits
Third-quarter sales rose 13% to US$4.12bn in the quarter to 26 February. Price hikes contributed three percentage points of growth, with pound volume boosting sales by ten points.
However, volumes from Yoplait, in which General Mills acquired a 51% stake last May, boosted the company's total pound volumes by 13 percentage points, indicating volumes from the rest of the group's operations fell.
Last month, General Mills issued a profit warning on the back of weak volumes in the US in December and January. General Mills confirmed today that its US retail sales volumes fell in the whole of the third quarter. US sales were up 4% but "price realisation and mix" contributed nine points of growth.
The company's segment operating profit inched up 1% to US$675m, due to "significantly higher input costs" and an 8% increase in marketing expenditure. Gross margin narrowed to 36.6% from 39.2%.
Adjusted diluted EPS totalled 55 cents, one penny below the year-ago level, the company added.
"Our third-quarter results reflect strong worldwide sales growth for our business, but the 10-11% input cost inflation we're experiencing this year pressured our margins," chairman and CEO Ken Powell said.
For the first nine months of the year, General Mills said net sales rose 12%. Segment operating profit remained flat at US$1.24bn while net earnings totalled $1.24bn.
Nevertheless, Powell remained upbeat about the prospects for the remainder of the year, suggesting that the group expects to see margin pressure ease going into fiscal 2013.
"In the fourth quarter, we expect to generate continued good sales momentum and we anticipate that gross margin contraction will ease somewhat. This should result in renewed earnings growth as we wrap up 2012 and move into the new fiscal year."
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