Sept. 19 (Bloomberg) -- General Mills Inc., the second- largest U.S. cereal maker, said profit rose 8.2 percent on price increases and demand for new Cheerios Crunch Oat Cluster cereal and healthier snacks.

Revenue climbed 7.4 percent to $3.07 billion in the first quarter, led by demand for snacks in the U.S. and a 19 percent gain in international sales, the company said today. General Mills repeated its full-year earnings forecast.

General Mills raised advertising spending by 11 percent to promote reduced-calorie Progresso soups and whole-grain Fiber One snack bars in an appeal for health-minded consumers. Higher grain and oil costs may force additional price increases after the company began charging more for cereal and Yoplait last quarter, Chief Executive Officer Stephen Sanger told analysts today.

``They've shown some pricing power,'' said Peter Jankovskis, who helps manage $1.3 billion at Oakbrook Investments LLC. The Lisle, Illinois, firm owns 239,600 General Mills shares.

Net income climbed to $288.9 million, or 81 cents a share, from $266.9 million, or 74 cents, a year earlier, the Minneapolis-based company said in a statement. The per-share figure for the three months through Aug. 26 matched a preliminary number released earlier this month.

The maker of Totino's frozen pizza and Nature Valley snacks affirmed its profit forecast of $3.39 to $3.43 a share this year. Analysts estimate $3.46, the average of 15 projections compiled by Bloomberg.

Trailing Kellogg

General Mills shares rose 18 cents to $58.85 at 4:03 p.m. in New York Stock Exchange composite trading. The stock has advanced 2.2 percent this year, trailing a gain of 12 percent by Kellogg Co., the biggest U.S. cereal company.

Sanger, 61, said it's ``very possible'' the company may raise its $250 million estimate for increases in energy and commodity costs this year. General Mills started charging more for Yoplait yogurt in July and may increase prices again to counter rising dairy costs, Sanger said.

``We're watching and may pass on additional pricing if necessary,'' he told analysts. Higher prices may take the form of list-price increases and a reduction in promotions.

U.S. retail sales rose 6.4 percent to $2.03 billion, led by demand for Fiber One bars and Nature Valley snacks, while cereal sales advanced 5 percent on the introduction of Chocolate Chex and other new flavors. Operating profit rose 5.8 percent to $473 million in the division, which contributes two thirds of revenue.

``Good marketing support on our strong brands'' spurred sales, Ken Powell, General Mills president and chief operating officer, said in an interview.

Financial Hedges

General Mills is trying to guard against rising costs by using hedges, financial contracts that guard against price spikes, on 65 percent to 70 percent of its ingredients expenses, Chief Financial Officer Don Mulligan told analysts. Energy costs are 75 percent to 80 percent covered by hedges, he said.

Milk futures have climbed 64 percent in the past year as U.S. production trailed demand for dairy exports, especially from China and Latin America. The price reached a record $22.45 per 100 pounds on June 25.

General Mills has eliminated slow-selling varieties of Pillsbury refrigerated dough and frozen vegetables while streamlining production. In the past two years, it reduced the number of pretzel shapes in Chex Mix snacks and the number of pasta shapes in Hamburger Helper.

The company introduced 440 products worldwide last year, focusing primarily on consumer demand for healthy and convenient foods. Among the new items were 60-calorie packages of Progresso soup, single servings of Hamburger Helper, Chocolate Chex cereal and Green Giant brand Giant Bites vegetable nuggets.

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

Last Updated: September 19, 2007 16:20 EDT