US packaged food maker General Mills today (18 March) revealed that third-quarter net income dropped 33%, weighed down by higher costs, falling volumes and currency exchange.

General Mills said net income totalled US$289m for the period ended 22 February, down from $430m for the comparable period of last year.

Net sales gained 3.9%, to $3.54bn, while currency exchange took 3% off sales growth. However, volumes slipped 1%, the company revealed.

US retail sales gained 8.5% while profit edged up 0.7%. These gains were offset by the performance of General Mills’ international segment, where sales fell 5.4% and profit fell 6.3% due to the stronger dollar. On a constant currency basis, international sales gained 10%.

General Mills’ food service and bakeries segment remained its weak point, as sales fell 6.2% and profits plummeted 61%.

Gross margins were squeezed by higher ingredients costs and a year-earlier gain on grain merchandising, dipping to 36.1% from 39.8%. The group has invested heavily in driving brand awareness, with marketing costs rising 6% year-on-year.

“Our results this quarter reflect a difficult comparison against strong prior-year results, as well as significantly higher input costs in the current period,” chairman and chief executive Ken Powell said in a statement.

Nevertheless, General Mills remained upbeat, once again raising its full year earnings target range.

The company predicted fiscal-year earnings of $3.87-3.89 a share. The increase is the third time EPS guidance has been raised, most recently in December to $3.83-3.87.

“We expect to finish the year on a strong note,” Powell said. “We intend to continue investing substantial levels of consumer marketing support behind our brands in order to help position our businesses for continuing growth in fiscal 2010.”