Apparently, the company got caught with pricey hedges at the top of the commodity markets. The mark-to-market on the hedges will come back to bite the company in the Poppin' Fresh Doughboy as soon as they have to realize it into the cost of production in the second half. Clearly, General Mills was not able to take advantage of falling commodity costs and got smacked with the impact of the strengthening dollar.

Still, the company had a solid quarter in a tough environment and pleasantly raised guidance for the rest of the year. The General Mills news seems to have had a halo effect on Ralcorp (RAH - commentary - Cramer's Take), which is rallying over 2% today. While General Mills is a quality company, I will stick to Ralcorp.

General Mills reported better-than-expected EPS of $1.14 on revenue of $4.01 billion. Included in this year's results was a mark-to-market valuation adjustment of negative 49 cents, partially offset by a 22-cent gain on the sale of Pop Secret. Excluding those items, the compnay earned $1.36 per share. In the year-ago quarter, General Mills earned $1.11 per share, including a 3-cent mark-to-market gain on commodity positions.

The 8% net sales growth was generated from the following components:

• volume was up 2%;
• price realization and product mix was up 8%; and
• foreign exchange was down 2%.