General Mills said yesterday that despite a rise in costs and increased advertising spending it was able to report a pleasing second quarter.

The US cereal company saw net sales for the period reach US$3.27 billion, up 3% on the same period a year ago. Unit volume grew 2% worldwide.

However, segment operating profits of $647m were 2% below strong prior-year results, reflecting higher advertising spending and freight costs. Earnings after tax increased 1% to $370m. Diluted earnings per share (EPS) rose 5% to 97 cents this year compared to 92 cents in last year’s second quarter.

EPS results for both years include the effect of accounting for contingently convertible debt. This reduced second-quarter EPS by 5 cents in each period.

Through the first six months of fiscal 2006, General Mills’ net sales were up 3% to $5.94 billion. Segment operating profits increased 7% to $1.15 billion. Earnings after tax grew 13% to $622m, and diluted earnings per share rose 18% to $1.60 including 9 cents of dilution associated with accounting for contingently convertible debt.

However, while second quarter domestic retail sales mirrored overall growth (rising 3%), domestic operating profits totalled $545m, down 4% from last year. In terms of growth, General Mills’ consolidated International businesses performed well, expanding by 8% in the second quarter to reach $472m with operating profits rising to $56m, a 14% increase from year-ago results.

Chairman and CEO Steve Sanger said: “We’re pleased with our performance in the second quarter. While higher input costs and increased advertising spending pressured margins, earnings per share exceeded our plan for the quarter.”

Commenting on the year, Sanger said: “Through the first half, we achieved net sales growth, price realisation and margin expansion in all three of our operating segments. This performance drove strong growth on our bottom line and has put us ahead of plan as we move into the second half of 2006.

“Our earnings expectations for the second half include significant year-over-year increases in consumer marketing expense and input costs,” he continued. “But based on our good first-half performance, we raised our 2006 earnings guidance as announced on December 12 to a range of $2.80 to $2.85 per share, including an estimated 8 cents of dilution associated with accounting for contingently convertible debt.”

The company also recently announced an increase in the quarterly dividend to a rate of 34 cents per share.