General Mills profit just below estimates

General Mills Inc on Thursday posted quarterly profit that was a penny shy of analysts' estimates as increased marketing spending and higher commodity costs tempered gains. Shares of the company, which has seen higher costs chip away at margins, fell 1 percent in early trading.
General Mills, like many other food companies, has been spending more on marketing to help boost sales, while at the same time being pressured by rising costs for commodities like corn, dairy products and energy. The company's consumer marketing spending rose 16 percent from a year earlier.
"The company is struggling with the commodities cost input inflation and that's clearly hurting their operating margins," said Arun Daniel, senior sector analyst, consumer discretionary staples at ING Investment Management.
"We're going to see that across the board with all the food (companies), and in some degree the consumer packaged companies as they report," he said. ING held about 800,000 General Mills shares as of March.
The maker of Cheerios cereal, Progresso soups and Yoplait yogurt said profit was $224 million, or 62 cents a share, for the fiscal fourth quarter that ended May 27. That compares with $222 million, or 61 cents a share, a year earlier.
Analysts, on average, forecast 63 cents a share, according to Reuters Estimates. Sales rose 7 percent to $3.06 billion. Analysts, on average, had forecast $2.99 billion, according to Reuters estimates.
Operating margin fell to 13.3 percent from 14.4 percent a year earlier. The company saw a charge of $8 million due to a plant restructuring in its Cereal Partners World-wide joint venture.
US retail segment sales rose 6 percent in the quarter, though operating profit in that segment fell 2 percent, primarily do to the increased marketing spending. Sales of the company's Big G cereals - Cheerios, Wheaties, among others - also rose 6 percent during the quarter, a spokeswoman said.
The company expects its commodity costs to rise 5 percent in fiscal 2008. On Wednesday, ConAgra Foods Inc forecast 6 percent commodity cost inflation for its business.
General Mills also raised cereal prices this week to help offset higher costs. For fiscal year 2008, the company forecast earnings of $3.39 to $3.43 a share and said it expected to meet its targets of low single-digit growth in net sales, mid single-digit growth in segment operating profits, and high single-digit growth in earnings per share.
Analysts, on average, forecast $3.44 a share, according to Reuters Estimates. General Mills shares fell 59 cents, or 1 percent, to $58.86 on Thursday on the New York Stock Exchange. The stock trades at about 17.2 times next year's estimated earnings, compared with a multiple of 17.1 for cereal industry leader Kellogg Co.