General Mills Lays Out New Product Assortment

General Mills will launch several new products next year as it rides a wave of good second-quarter news. In addition to three new cereals that meet Disney's new nutritional guidelines, General Mills will come out early next year with Nature Valley cereal, an extension of its grain snack and granola bars.

In a conference call with investors on Thursday, the company hinted that it will also introduce a probiotic yogurt to go up against Group Danone's successful Activa.

Company executives noted that probiotics is an emerging segment in the yogurt industry, and that General Mills remains committed to bringing innovation to the marketplace. Probiotics contain bacteria that convert carbohydrates into lactic acid, improving the sour taste of fermented dairy products such as yogurt and aiding in digestion. Sales of Danone's Activa yogurt with probiotics were up 36% in 2005.

Harry Balzer, vice president of market research firm NPD Group, said that over the last several months the number of people who say they would like more probiotics in their diets is "slowly moving up." However, he noted, the same percentage of people surveyed, 13%, say they want to get rid of probiotics in their diets, suggesting there is room for education.

General Mills, the No. 2 maker of breakfast cereal, posted better-than-expected second-quarter earnings and raised its profit forecast for the year on strong sales of new, higher-priced products such as Fruity Cheerios cereal and Caribou Coffee granola bars. The company said growth would be moderated in the second half of its fiscal year by higher grain and marketing costs.

The Nature Valley cereal line comes on the heels of double-digit compounded growth in the grain snack and granola bar segments. "Customers think it's a natural extension," one executive said.

The Disney cereals will be followed by more in 2007. They are the first cereals that meet Disney's new guidelines, established in October. They have kid-sized portions and related calorie counts and lower percentages of total fat, saturated fat and sugar. "They're opening at a nice price point," said the cereal maker, referring to the cereals' $1.99 cost for boxes that range from 9.9 to 11.6 ounces.

General Mills also saw strong sales of its Yoplait yogurt, Chex Mix and its organic food business. Net sales for the U.S. snacks business grew 7%, driven by Caribou Coffee Bars and new varieties of Nature Valley Sweet & Salty Nut bars and Chex Mix. Yoplait net sales grew 6%, the company said.

Both the meals division and Pillsbury USA reported net sales increases of 4%, on the strength of Progresso soup, Old El Paso Mexican foods and Hamburger Helper.

Net sales for baking products fell 4% from a year earlier, while net sales for the company's Small Planet Foods organic business grew 19%.

Despite a forecast of continued raw materials cost inflation, increases in marketing expenditures and new product activity in the second half of the year, General Mills raised its forecast for fiscal 2007.