General Mills Profit Trails Estimates Costs Increase

General Mills Inc., the maker of Cheerios cereal, reported second-quarter profit that trailed analysts’ estimates because of higher commodity costs and unfavorable currency fluctuations.

Adjusted earnings per share for the period ended Nov. 24 were 83 cents, the Minneapolis-based company said in a statement today. Analysts projected 87 cents, the average of estimates compiled by Bloomberg.

Chief Executive Officer Ken Powell said results in the quarter were hurt by higher ingredient costs and slowing food and beverage industry sales. Currency-exchange effects reduced net sales growth by 3 percentage points in the international unit, the company said. Gross margin, excluding the increased value of some commodity positions and grain inventories, narrowed by 1 percentage point to 35.7 percent.

“The quarter featured modest sales growth, but margins were below our expectations,” Christopher Growe, an analyst at Stifel Financial Corp. in St. Louis, said today in a note. “The margin was pressured this quarter with lower volumes and higher input cost inflation.”

General Mills rose 0.3 percent to $49.73 at the close in New York. The stock has gained 23 percent this year, compared with a 27 percent increase for the Standard & Poor’s 500 Index.

While General Mills reaffirmed its forecast for fiscal 2014 adjusted earnings per share of $2.87 to $2.90, the company said foreign-currency effects will now be “a greater headwind than originally estimated.” Possible devaluation of Venezuela’s currency may reduce earnings per share to the low end of the company’s forecast, General Mills said.

Venezuela Devaluation

Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in a effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast.

Net income in the quarter rose 1.5 percent to $549.9 million, or 84 cents a share, from $541.6 million, or 82 cents, a year earlier, General Mills said. Sales slid 0.1 percent to $4.88 billion. Analysts estimated $4.94 billion.

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