March 19 (Bloomberg) -- General Mills Inc., the second- largest U.S. cereal maker, beat analysts' estimates for third- quarter profit as it shipped more Yoplait yogurt and Fiber One granola bars, and cut costs to counter soaring commodity prices.

Net income jumped 61 percent to $430.1 million, or $1.23 a share, in the three months through Feb. 24, the Minneapolis-based food producer said. Revenue climbed 12 percent to $3.41 billion. General Mills, which reiterated its forecast for annual earnings today, rose 1.2 percent in New York trading.

Chief Executive Officer Ken Powell increased marketing spending by 13 percent, spurring demand for Nature Valley snacks, lower-calorie Progresso soups and Totino's pizza rolls. The company also boosted prices, passing rising wheat and dairy costs on to U.S. shoppers, and trimmed expenses by reducing the frequency of truck deliveries as gasoline prices gained.

``They delivered a strong set of results, with plans for aggressive spending on their brands setting the table for more of the same,'' Matt Arnold, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview. He recommends buying General Mills shares.

Cereal sales advanced 3 percent, while total U.S. retail revenue climbed 9.2 percent to $2.3 billion. Overseas revenue increased 20 percent to $612.8 million, bolstered by the weaker U.S. dollar. Shipments by pounds rose 6 percent in the quarter.

New Products

More marketing and new products will help create ``good earnings growth'' in the year ending May 2009, Chief Executive Officer Ken Powell said on a conference call with analysts today. Shoppers pinched by rising fuel and home mortgage costs haven't started shifting to lower-priced foods, he said.

General Mills climbed 72 cents to $58.92 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has advanced 3.4 percent this year.

Gains from commodity hedging and a favorable court ruling on a tax matter increased profit by 36 cents a share. Excluding those items, General Mills said it earned 87 cents a share, 8 cents higher than the average estimate of 15 analysts surveyed by Bloomberg News. Ten analysts predicted sales of $3.24 billion.

Profit was $267.5 million, or 74 cents, in the year-earlier third quarter.

The rising value of the company's grain inventories and hedging positions in energy, wheat and other commodities boosted profit by $151 million. The court decision contributed $30 million. One-time items provided a gain of $106 million, compared with an expense of $36 million year earlier.

General Mills left its projection for full-year earnings excluding one-time items unchanged at $3.45 to $3.47 a share, citing rising marketing and commodity costs.

`Highest-Cost Quarter''

The cost of wheat almost doubled in the third quarter from a year earlier, while dairy prices jumped 41 percent.

``We are expecting more inflation,'' said Powell, 53. The quarter ending in May will be the ``highest-cost quarter'' as General Mills signs new contracts locking it into higher prices for commodities used in its foods.

The cereal maker said gains from commodities hedging and taxes will contribute 30 cents, boosting profit to $3.75 to $3.77 in the year through May. The company raised its earnings forecast on Feb. 19.

``The input cost environment is, in fact, worsening,'' said Arnold. ``They're also making a conscious decision to spend more behind the brands.''

Smaller Boxes

Among cost cuts, General Mills shrank box sizes for cereal and Hamburger Helper dinner kits last year. That reduced packaging and diesel fuel expenses as delivery trucks carried more boxes on fewer trips to supermarkets.

``It's generated very significant logistics and freight and diesel savings because we're shipping more product in the same truck,'' Powell said in a telephone interview.

Such cuts generated enough savings to cover about half of the company's higher costs, Powell said.

General Mills blunted the remaining expenses by pushing pricier foods and charging more for cereals, Progresso soups, Yoplait yogurt, Pillsbury breakfast pastries and Green Giant canned vegetables.

General Mills sells its new Oat Cluster Cheerios Crunch cereal for more than other Cheerios varieties.

An 11.3 ounce (320 gram) box of Oat Cluster Crunch sells for $3.69, or 32.7 cents an ounce, at a Harris Teeter supermarket in Greensboro, North Carolina. That compares with Honey Nut Cheerios at $4.39 for a 17 ounce box, or 25.8 cents an ounce.

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

Last Updated: March 19, 2008 16:20 EDT