Is It Safe? Slow Growth for General Mills

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Food seems like a recession-proof industry, especially if you sell wallet-friendly products like Cheerios and Hamburger Helper. But even General Mills(GIS Quote) is getting burned by the struggling economy.

After increasing per-share earnings by 16% a year, on average, for the past three years, analysts expect growth at General Mills to slow to 11% in its current fiscal year, which ends this month. Next fiscal year, the company is expected to boost earnings by 6.7%.

General Mills is feeling the pain of rising commodity prices and a strengthening dollar, which is hurting profits from international sales. Those trends are expected to continue this year, according to futures and analysts. The stock is rated "buy" with a grade of B-minus, but it could easily become a "hold"-level stock, suggesting limited gains for shareholders.

International sales accounted for 18% of General Mills' revenue in the most recent quarter. When other currencies are stronger than the dollar, the value of the company's foreign sales rises. In past years, the weak dollar helped push earnings up as much as 21%. But renewed strength in the greenback's recent has muted overseas earnings in recent months.

Higher prices on key ingredients might add to its woes. Futures contracts for May 2010 delivery of corn, wheat and oats are 12% to 20% higher than current quotes.

General Mills uses futures, swaps and forward currency contracts to hedge against shifts in interest rates, commodity prices and foreign exchange rates. The contracts usually don't extend more than 12 months in advance, which shields the company from short-term swings but doesn't protect it from long-term trends.