General Mills making a cereal killing: It's morning in America at the Golden Valley food company

Thu. July 02, 2009; Posted: 03:35 AM

Led by its cereal business, General Mills on Wednesday reported a fiscal 2009 filled with crunchy goodness. Fourth-quarter earnings nearly doubled for the Golden Valley-based foodmaker and officials predicted more good times ahead.

The past year "was nothing short of a fantastic year for our cereal business," said Ian Friendly, the company's chief operating officer for U.S. retail operations.

Not so long ago, cereal was viewed by some food analysts as a large-but-mature category that was a drag on General Mills' overall growth, unable to match hotter categories like Yoplait yogurt and Nature Valley snack bars.

The recession has changed that, as consumers turned to eating more meals at home and a bowl of cereal was viewed as an inexpensive breakfast -- or supper.

Sales of Honey Nut Cheerios grew by 17 percent this year, Lucky Charms by 12 percent, and Fiber One sales are up 35 percent. Overall, General Mills' cereal sales grew by 11 percent for the year.

"Cereal does tend to do well year in and year out, but it does particularly well during periods of economic slowdown," Ken Powell, General Mills' chairman and chief executive, said in an interview.

Typically, U.S. cereal sales grow 2 percent to 3 percent a year, "and that's a fine growth for us, we can develop a good business performance off of that," Powell said. "This year, it grew faster than that, 5 to 6 percent."

With General Mills getting larger

shares of the cereal bowl, can the category keep growing? Powell is optimistic.

"Only a third of (U.S.) breakfasts today are breakfast cereal, and there are many countries in the world where per capita consumption of cereal is higher than it is in the United States ... so we think there is plenty of room for steady, incremental growth."

On the international side, General Mills has a joint venture with Nestle to bring Cheerios to the world. The partnership holds the No. 1 cereal market position in Southeast Asia, Russia and Turkey, and No. 2 in Brazil, Mexico, Australia and Britain.

"Outside the U.S., there, the upside is really strong," Powell said.

In the fourth quarter, General Mills earned $359 million, a 93 percent gain. Sales rose 5 percent to $3.6 billion. Last year's earnings performance was hindered by a one-time mark-to-market accounting change. Excluding one-time events, earnings per share rose 18 percent, the company said.

For the full fiscal year, General Mills net sales grew by 8 percent, to $14.7 billion. Net earnings were $1.3 billion, up less than 1 percent.

Powell told analysts that food inflation seems to have cooled since last year. General Mills did raise some prices, in part by shrinking package sizes, but it also tried to make up the shortfall by increasing effi-ciency.

"We faced significant input cost pressure in our business last year," Powell said. "Our plan estimated 9 percent inflation, the highest rate that we've seen in many years, and our actual costs essentially matched that estimate."

Shares of General Mills rose nearly 4 percent Wednesday, up $2.16 to close at $58.18.

Tom Webb can be reached at 651-228-5428.

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