By Vibhuti Sharma and Gayathree Ganesan

By Vibhuti Sharma and Gayathree Ganesan


(Reuters) - General Mills Inc <GIS.N> reported a smaller-than-expected quarterly profit as yogurt and cereal sales declined in North America, sending the company's shares down 9 percent to their lowest levels in nearly two years.


The results underscore General Mills' struggles with consumers' shifting preference for protein-rich and thicker Greek yogurts.


To cater to the changing tastes, General Mills has spruced up its premium yogurt offerings through the launch of products such French yogurt Oui by Yoplait.


Despite the efforts, organic sales in North America, the largest contributor to the company's revenue, fell 5 percent, driven by double-digit declines in U.S. yogurt sales.


More than half of North America segment's net sales decline in the quarter was due to a slump in U.S. yogurt sales.

General Mills' results also dragged down other packaged food makers. Conagra Brands Inc <CAG.N> was down 1.5 percent, Treehouse Foods <THS.N> 1.4 percent and Kellogg Co <K.N> 0.8 percent.

The results come at a time when the U.S. food industry is expected to face renewed pressure from the entry of online giant Inc <AMZN.O> into brick-and-mortar store business through its acquisition of Whole Foods Market Inc.

General Mills, which also owns brands such as Cheerios, Betty Crocker and Pillsbury, said gross margins dipped 1.5 percent to 34.8 percent in the first quarter, reflecting a 2 percentage points decline in pricing in North America.

"Lowering relative prices to drive volume in a rising cost environment, especially when competitors might selectively retaliate, seems like a tough project to estimate," Consumer Edge Research analyst Jonathan Feeney said.

"Through Q1, its proven more costly than expected."

Net sales in General Mills' U.S. cereal unit fell 7 percent in the first quarter ended Aug. 27 as demand remained weak for Fiber One cereal.

Excluding one-time items, the company earned 71 cents per share.

The company's net sales fell 3.5 percent to $3.77 billion.

Analysts on average had expected an adjusted profit of 76 cents per share and sales of $3.79 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Vibhuti Sharma and Gayathree Ganesan in Bengaluru; Editing by Anil D'Silva and Sriraj Kalluvila)