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Snack Sales Boost General Mills

Overall revenue climbs 6.8% in the fiscal second quarter.
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A pizza recall and mushrooming commodity costs ate into

General Mills'

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bottom line for the fiscal second quarter, though the Minneapolis-based food maker still managed a slight profit rise over last year.

Helping that along was a 6.8% year-on-year sales climb to $3.7 billion, which edges out the $3.62 billion average analyst call from Thomson Financial.

Mills' U.S. retail segment -- encompassing Pillsbury products, Yoplait yogurt and cereals such as Cheerios, among other things -- saw revenue grow 3%. Its snacks division, which makes Nature Valley and Fiber One bars, enjoyed a 12% top-line jump, and yogurt sales weren't far behind.

But an

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scare in November forced a recall of several frozen pepperoni pizza products, costing the company $20 million and helping to pressure U.S. retail operating income down 2%.

Bakeries and foodservice was the most disappointing segment, with operating income sliding 14% despite an 8% revenue jump. International operating earnings, however, leapt 36% thanks to surging sales and favorable foreign-exchange rates.

All in all, Mills earned $390.5 million, or $1.14 a share, up from $385.4 million, or $1.08 a share, a year earlier. That includes a 4-cent charge from the pizza recall.

Analysts, who typically exclude one-time items from their estimates, were looking for $1.13 a share.

Rising costs for food ingredients helped pressure these results "significantly," said CEO Ken Powell, along with a double-digit hike in marketing costs. And commodity-cost inflation will probably continue at a higher rate in the second half than the company had originally thought.

Still, fiscal 2008 earnings guidance remains steady at $3.39 to $3.43 a share, since Mills plans to offset the commodity costs with higher sticker prices and productivity savings. Wall Street is seeking earnings of $3.45 a share.

The company also lifted its full-year revenue-growth targets to somewhere in the mid-single digits. Prior guidance had this figure in the low single digits.

Shares of General Mills were recently down $1.24, or 2.1%, to $57.83.