Pillsbury’s Net Sinks 38% in 2nd Quarter

Pillsbury Co. said Tuesday that the cost of unsuccessfully fighting off Britain’s Grand Metropolitan PLC for two months, plus a special addition to its Burger King subsidiary’s advertising budget, slashed second-quarter earnings by 38%.

The Minneapolis-based food company, which agreed Sunday to be acquired by the British hotel and gaming conglomerate for $5.75 billion, said it earned $44.8 million, down from $72.5 million in its second quarter last year.

“Significant additional expenses and contingent fees will also be incurred during the second half of the year,” the food company said.

Sales for the quarter, which ended Nov. 30, rose 3.5% to $1.75 billion from $1.69 billion.

But analysts said the results showed that despite vexing problems with its restaurant operations such as Burger King, Pillsbury’s core food business remained sound.

Chairman to Leave

The company said the Burger King investment reduced net earnings by $14.4 million, while after-tax costs related to the unsolicited tender offer from Grand Met cost it $13.2 million.

The one-time investment of $23.4 million for the Burger King advertising fund will allow the Miami-based fast-food chain to continue a high level of promotional spending at a time when sales are below expectations, Pillsbury said.

Operating profit for its restaurant division fell to $4.2 million in the quarter from $47.6 million a year ago. Sales declined 7% to $611 million, with half of the decline coming from its sale earlier this year of Godfather’s Pizza chain.

Separately, Pillsbury Chairman Philip L. Smith said he would leave the company after Grand Met completes the buyout sometime this winter.

Smith, 54, former chairman of General Foods Corp., became Pillsbury’s president, chairman, and chief executive Aug. 1.

“There isn’t a CEO I know that wouldn’t rather be running an independent company,” Smith told the Minneapolis Star Tribune.