General Mills' net income fell 28 percent during the second quarter as revenue gains were not able keep pace with rising costs.
The company maintained its full-year guidance and said it expects strong sales and profitability gains in the second half of the fiscal year. However, it cautioned that its gross margins would be lower during that time, given continued cost pressures and its recent acquisition of lower-margin Yoplait.
General Mills, which makes foods such as Cheerios cereal at a factory in Buffalo, Nature Valley granola and Hamburger Helper, remains one of the most popular food brands in grocery stores. But like most of its peers, it has struggled with higher costs for everything from ingredients to labor. The company forecast inflation cost increases of 10 to 11 percent for the year and has raised its prices to offset that pressure.
General Mills reported Tuesday that it earned $444.8 million, or 67 cents per share, for the quarter ended Nov. 27. That's down from $613.9 million, or 92 cents per share, a year earlier. Excluding charges tied to its Yoplait deal and other items, earnings were 76 cents per share.
Analysts polled by FactSet anticipated the company would earn 79 cents per share. The miss sent shares down in trading Tuesday.
Revenue rose 14 percent to $4.62 billion. Analysts forecast revenue of $4.6 billion.
"We knew it was going to be a tough environment, and it is, but the year is shaping up as we anticipated," said Don Mulligan, the company's chief financial officer.
The company, based in Minneapolis, saw its biggest revenue jump in its international business during the quarter. General Mills, which already distributed Yoplait products in the United States, announced in July that it was acquiring a controlling stake in international yogurt maker. This was the first full quarter with the yogurt brand under its ownership, which boosted its international sales by 55 percent.
Revenue at its bakeries and food service division increased 12 percent with strong sales of products such as Pillsbury Mini-Pancakes and French Toast. Revenue from its U.S. retail business increased 3 percent on strong sales of cereal and snacks, but it saw weaker sales of yogurt and some baking products with higher prices.
Shares of the company fell 32 cents, about 0.8 percent, to $39.27 on Tuesday.