General Mills will cut costs after earnings miss estimates

General Mills reported fiscal fourth-quarter earnings Wednesday that trailed analysts' estimates and said it began a review of its North American manufacturing and distribution network as part of a wider effort to reduce costs.

The maker of Cheerios cereal said the cost-cutting plan is expected to generate pretax savings of $40 million in fiscal 2015, and will have additional savings in 2016, according to a statement today.

CEO Ken Powell said sales and operating profit were 'disappointing” in the last fiscal year as promotional spending in developed markets was less effective than planned. Revenue in the quarter ended May 25 dropped 2.9 percent to $4.28 billion.

The cost savings at General Mills will likely go into product development and market support, Erin Lash, an analyst at Morningstar Inc. in Chicago, said Wednesday in a phone interview. The question is whether General Mills will lower prices to drive sales volume or if it will bring in higher cost products popular with consumers, she said.

'By taking costs out of the business - we're not expecting that to drive material margin improvement,” said Lash. 'We're expecting them to reinvest that back into the brand.”

Adjusted earnings per share in the quarter were 67 cents, the Minneapolis-based company said.