Lamb Weston Takes A Hit From High Manufacturing Costs And Softer Volumes, Expects Challenging Conditions Till 2026

Lamb Weston Holdings, Inc. LW shares are trading lower in the premarket session on Thursday.

The company reported second-quarter adjusted earnings per share of 66 cents, missing the street view of $1.01. Quarterly sales of $1.60 billion (down 8% year-over-year) missed the analyst consensus estimate of $1.674 billion.

Volume dropped by 6 percent in the quarter due to weak global restaurant traffic and customer share losses, partially offset by gains.

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The decline also reflects the company's decision last year to exit a lower-priced, lower-margin business in Europe to manage its customer and product mix better.

"Higher-than-expected manufacturing costs and softer volumes accounted for the shortfall, while price/mix and operating expenses were broadly in line with our targets for the quarter," said CEO Tom Werner.

"In terms of the broader operating environment, we expect challenging conditions to persist through the remainder of fiscal 2025 and into fiscal 2026," he added.

Net sales for the North America segment fell 8% to $1.072 billion, while the International segment decreased 6% to $528.8 million. 

Adjusted gross profit declined by $134.9 million to $343.5 million versus the prior year quarter due to unfavorable price/mix, higher manufacturing costs per pound, and lower sales volumes.

Adjusted EBITDA declined by $95.0 million to $281.9 million compared to the prior year quarter, primarily due to lower net sales and adjusted gross profit.

As of November 24, the company had $79.0 million of cash and cash equivalents and $1.211 billion of available liquidity under its revolving credit facility.

Dividend Hike: In December 2024, the company approved an increase of $250 million in the company's existing $500 million share repurchase authorization under the program to an aggregate total of $750 million.

In addition, the board declared a quarterly dividend of 37 cents per share of Lamb Weston common stock, an increase of 1 cent.

The dividend is payable on February 28 to stockholders of record as of the close of business on January 31, 2025.

CEO Appointment: Lamb Weston announced the appointment of Michael J. Smith, currently COO, as President and CEO, effective January 3, 2025. He will also join the company's Board of Directors.

Smith succeeds Thomas P. Werner, who is stepping down but will serve in an advisory role until August 31, 2025.

Outlook: Lamb Weston has lowered its FY25 outlook, now expecting net sales of $6.35 billion to $6.45 billion, down from a prior outlook of $6.6 billion-$6.8 billion. The analyst consensus estimate pegs at $6.65 billion.

The company also revised its adjusted EPS projection to $3.05-$3.20, below the previous outlook of $4.15-$4.35. The street view stands at $4.20.

Price Action: LW shares are trading lower by 20.80% to $61.97 premarket at last check Thursday.

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Photo Courtesy of Lamb Weston