Dec. 19 (Bloomberg) -- General Mills Inc., the second- largest U.S. cereal maker, said quarterly profit rose 1.3 percent, spurred by price increases and demand for lower-calorie Progresso soups and snacks.

The Minneapolis-based maker of Cheerios cereal and Nature Valley granola bars left its full-year profit forecast unchanged.

Chief Executive Officer Ken Powell spent 10 percent more to advertise whole-grain Fiber One snack bars, healthier Yoplait yogurts and Progresso Light soups. Price increases on cereal and yogurt since June blunted soaring wheat and dairy costs. A frozen pizza recall reduced profit by 4 cents in the second quarter.

``They've got some pricing power to offset higher input costs,'' Matt Arnold, an Edward Jones & Co. analyst in St. Louis, said today. He rates General Mills ``buy.''

Net income climbed to $390.5 million, or $1.14 a share, from $385.4 million, or $1.08, a year earlier. Revenue in the three months through Nov. 25 gained 6.8 percent to $3.7 billion, General Mills said today in a statement.

General Mills fell $1.08, or 1.8 percent, to $57.99 at 4 p.m. in New York Stock Exchange composite trading. The stock is up 0.7 percent this year after climbing 17 percent in 2006.

Analysts expected General Mills to earn $1.14, the average of 15 projections compiled by Bloomberg. They predicted sales of $3.6 billion.

Pizza Recall

Some analyst estimates include costs of a frozen-pizza recall in November. General Mills recorded expenses of $20 million to recall almost 5 million Totino's and Jeno's frozen pizzas with pepperoni toppings linked to illness from E. coli bacteria.

General Mills, which also makes Green Giant frozen vegetables and Betty Crocker baking mixes, still predicts 2008 earnings of $3.39 to $3.43 a share.

General Mills countered higher wheat costs in June when it increased cereal prices by as much as 4 percent. It reduced the size of cereal boxes, raising the price per ounce. The move, mostly completed by mid-November, led to reduced shipments and a loss of sales to larger Kellogg Co., analysts said.

``Competitors, particularly Kellogg, have been taking advantage of the General Mills box changeover,'' Pablo Zuanic, an analyst at J.P. Morgan Securities Inc. in New York, wrote in a Dec. 13 note to clients. He rates General Mills ``underweight.''

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina at 1348 or cburritt@bloomberg.net.

Last Updated: December 19, 2007 16:15 EST