June 25 (Bloomberg) -- General Mills Inc., the second- largest U.S. cereal maker, said fourth-quarter earnings dropped 17 percent after gains from commodities trading declined.

Profit for the 12 months ending May 2009 will rise to $3.78 to $3.83 a share from $3.52, General Mills reaffirmed today, as costs jump 9 percent. Fourth-quarter earnings excluding trading rose to 73 cents, matching the amount the company gave June 18.

Sales rose the most since 2002. General Mills countered soaring grain, cocoa and fuel costs by increasing cereal prices about 4 percent and charging more for Pillsbury breakfast pastries and Green Giant canned vegetables. Chief Executive Officer Ken Powell spent 20 percent more on U.S. marketing, spurring higher sales and shipments of Fiber One cereal, Yoplait yogurt and Pillsbury refrigerated baked goods.

``They increased marketing spending to set the table for more good results in 2009,'' Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri, said today in an interview. He recommends investors buy the shares. Higher prices and shipments are ``the key to why they're doing as well as they are.''

Fourth-quarter net income fell to $185.2 million, or 53 cents a share, from $224.1 million, or 62 cents, a year earlier, Minneapolis-based General Mills said in a statement. Revenue climbed 13 percent to $3.47 billion from $3.06 billion.

Sales for the next year may increase at a ``mid single- digit rate'' on a percentage basis, General Mills said. Analysts surveyed by Bloomberg estimate average profit of $3.82 a share on a projected sales gain of 4.8 percent.

Share Performance

General Mills fell 19 cents to $62.21 at 9:36 a.m. in New York Stock Exchange composite trading. The shares advanced 9.5 percent this year before today, compared with a 10 percent decline by the Standard & Poor's 500 Index.

Before General Mills' June 18 announcement, 13 analysts surveyed by Bloomberg estimated average earnings of 68 cents a share for the three months through May 25.

General Mills valued its gain from hedging positions in grains and other commodities at $57 million as of May 25, compared with $168 million at the end of the third quarter. That reduced pretax profit by $111 million, or 20 cents a share.

Wheat futures, which peaked at $13.495 on Feb. 27, have dropped 34 percent since then after investors speculated that global stockpiles will increase as farmers plant more. The grain has climbed 58 percent in the past year.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at cburritt@bloomberg.net.

Last Updated: June 25, 2008 09:37 EDT