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Rising costs impair profit for General Mills

By Peter Stiff , 24-Mar-2006

Like many other food producers General Mills is suffering from rising costs, which are holding back profits, despite increasing sales, according to the latest financial report.

Net sales for the quarter, ended 26 February, were $2.86bn, up three per cent on the previous year.

However, operating profit from its three segments increased by only $1m to $479m.

"Results for the third quarter met our expectations," said the firm's chairman and chief executive officer Steve Sanger. "All three of our business segments posted net sales increases in the quarter. But as we anticipated, profit growth was restrained by higher input costs - primarily commodities and fuel - higher employee benefits expense and increased advertising investment," he said.

Sales for the company's bakeries and foodservices unit were $424m, an increase of three per cent.

However, operating profit decreased by eight per cent, due to higher input costs.

Sales for the company's biggest segment, US retail, were $1.99bn, a rise of three per cent. Operating profit was stagnant at $420m.

The firm's Yoplait division increased sales nine per cent and sales of the Big G cereals brand rose five per cent.

Baking products were up 12 per cent and the snacks division increased sales by four per cent, due to growth in Natural Valley granola bars.

Sales at Pillsbury USA and the meals divisions also grew by one per cent.

The company's international segment experienced the most profitable quarter, with operating profit at $37m, up 16 per cent, on sales of $444m.

Cereal Partners Worldwide, the firm's joint venture with Nestle, also increased sales by eight per cent.

Food manufacturers around the world have been reporting the problems they are facing due to rising input cost.

The Confederation of British Industry (CBI) in the UK recently revealed that around 23 per cent of manufacturers reported an increase in costs in the last quarter, with food and drink producers among those who cited big cost increases.

General Mills markets over 100 brands worldwide including Häagen-Dazs, Pillsbury, Green Giant, Old El Paso, and Cheerios.

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