Net income for the second quarter fell 28% at General Mills as rising costs outpaced revenue gains.  The company said it expects strong sales and profitability gains in the second half of the fiscal year but also cautioned that its gross margins would be lower    because of continued cost pressures and its recent acquisition of Yoplait.  The company has struggled with higher costs for everything from ingredients to labor.

General Mills remains one of the most popular food brands in grocery stores.  The company makes foods such as Cheerios cereal, Nature Valley granola and Hamburger Helper.  The company’s biggest revenue gains came from its international business.  Its acquisition of a controlling stake in international yogurt maker Yoplait boosted international sales by 55%.

The company has forecast that it will see cost increases of between 10% and 11% for the year and is raising its prices to offset the cost increases.  General Mills chief financial officer Don Mulligan said, “We knew it was going to be a tough environment and it is but the year is shaping up as we anticipated.”

General Mills reported earnings of $444.8 million, or $0.67 per share, for the quarter that ended on November 27.  This was down from earnings of $613.9 million, or $0.92 per share during the same period a year earlier.  Analysts predicted the company would earn $0.79 per share and the missed earnings expectations sent shares tumbling in trading.  For the full year, General Mills expects adjusted earnings of $2.59 to $2.61 per share.

Edward Jones analyst Jack Russo speculated that while the company saw intense pressure this period, all signals point to improving business in the second part of the year as sales trends improve, the company displays a strong new product lineup, and the price hikes already in place contribute to the company’s bottom line.  He said, “I think there is a lot to look forward to.  They are well trusted in the sector.”

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