CHICAGO (AdAge.com) -- Branded package-food is still selling, but consumers are clearly cutting wherever they can. General Mills, a bellwether of the package-food industry, missed earnings this morning, citing a substantial decline in its bakery and food-service division. But the company's U.S. food businesses, including its flagship cereals, continued to grow, thanks in part to an 11% increase in consumer marketing during the quarter.
General Mills' earnings were $289 million, or 85 cents per share, down from $430 million, or $1.23 per share, a year ago. Analyst consensus had been 88 cents per share.
"As we move into the final quarter of our year, we are pleased to see continued good consumer demand for our products around the world despite a very challenging operating environment," General Mills CEO Ken Powell said during the call with investors. "And as we told you at CAGNY, we believe we have a portfolio for all seasons," he added, referring to a talk at the Consumer Analysts Group of New York conference just last month.
Net sales for the 13 weeks ended Feb. 22 were up 4% to $3.5 billion. U.S. retail was particularly strong, up 8% to $2.5 billion. Of that portfolio, Big G cereal remains the star, with sales up 13%, thanks to particularly strong performances by Honey Nut Cheerios, Multigrain Cheerios, Cinnamon Toast Crunch and Fiber One cereals.
"We are continuing to invest in our plans with strong levels of consumer support -- particularly TV advertising -- that promotes the health benefits of cereals," Mr. Powell said.
Other divisions prospering
A number of other divisions were also selling well. Package baking kits, such as Betty Crocker and Bisquick products, were up 16%. Pillsbury sales were up 15%, thanks to products such as refrigerated dough, Totino's pizza and Pillsbury Savorings frozen appetizers. Yoplait sales grew 7%, and its meals-division sales grew 5%, thanks to Helper dinners and the new Macaroni Grill line.
While consumers eating more meals at home has been a boon to the company in recent quarters, it is coming back to bite them. The company's bakery and foodservice business, which sells directly to restaurants, was down 6% to $462 million.
"I guess we should quit being surprised by this kind of weakness," analyst Jonathan Feeney said in a research note. "But it is dissonant with what the company had implied very recently." Mr. Feeney and others noted that the earnings represented a contrast to its bullish prognostications at CAGNY.
Budget smaller than Kellogg's
Mr. Feeney added that while General Mills continues to increase marketing support, the company's overall budget, about 6% of sales, falls short of competitor Kellogg, which spends 9% of sales on advertising.
"Are the costs of defending substantial market share gains at the expense of Campbell, Kellogg and Danone -- two of which spend substantially more against advertising -- suggesting a more immediate need for spending ramp up?" he wrote.
General Mills generally reports earnings a month before competitors Kraft and Kellogg. The company's news often provides a preview of things to come.