In November, General Mills recalled over 400,000 products, after fearing that the E. coli 0157:H7 strain found its way into pepperoni meat used on Totino and Jeno pizzas. The possible E. coli contamination was uncovered by state and federal authorities investigating 21 E. coli-related illnesses in 10 states. General Mills said nine of the 21 people reported having eaten Totino's or Jeno's pizza with pepperoni topping at some point before becoming ill, although all recovered from the illness later on. The recall hit the Pillsbury USA ranges particularly hard, as net sales for the division fell two per cent.
As well as the E. coli scare, higher input and commodity expenses had a negative impact on margins, together swelling the cost of sales to $2.3bn, a 7.8 per cent increase from the same period in 2006. However, the company remained optimistic for future growth, as total net sales for the quarter hit $3.7bn, 6.7 per cent more than in 2006. Operating profit also increased 1.7 per cent to $687m. In the US retail segment, brands that sold particularly well during the quarter included Nature Valley grain snacks, Fiber One bars and Yoplait products, as well as new probiotic product Yo-Plus yoghurt. In terms of the three General Mills divisions, net sales of bakery products grew eight per cent during the quarter to $958m. However the high commodity costs led to a 14 per cent drop in operating profit.
The international division fared better with both double digit growth in net sales and operating profit. Operating profit grew 36 per cent across the segment, led by strong double digit growth in the Latin America, Asia Pacific and Europe regions. Net sales for the segment increased at the slower rate of two per cent, the company said.
The company backed its full-year profit view of $3.39 to $3.43 per share, but raised its sales forecast to an increase in the mid-single digits from its previous forecast of a low-single-digit increase.