Why Is Frozen Potato Products Supplier Lamb Weston Stock Plunging Today?

Lamb Weston Holdings Inc LW shares are plunging after the company reported third-quarter FY24 sales growth of 16% year-on-year to $1.46 billion, missing the analyst consensus estimate of $1.645 billion.

Volume declined 16%, with approximately 8% of the decline related to unfilled customer orders resulting from the company’s transition to a new ERP system in North America.

Net sales in the North America segment fell 12% Y/Y and International climbed 179%.

Gross profit increased 1.5% Y/Y to $403.7 million, and the gross margin contracted 400 basis points to 27.7%.

The operating margin was 15.4%, and operating income for the quarter decreased 16% to $223.9 million.

Adjusted EBITDA decreased 2.3% Y/Y to $344 million. Adjusted EPS of $1.20 missed the analyst consensus of $1.45.

Lamb Weston held $62.3 million in cash and equivalents as of February 25, 2024. Net cash from operating activities for nine months totaled $481.5 million.

“The transition to a new enterprise resource planning (ERP) system in North America negatively impacted our financial results in the quarter by more than we expected,” said President and CEO Tom Werner.

The company estimates the ERP transition negatively impacted fiscal third-quarter net income by approximately $72 million and Adjusted EBITDA by approximately $95 million. 

“As a result of the ERP transition’s impact and soft near-term restaurant traffic trends, we have reduced our annual sales and earnings guidance for the year,” Werner added.

Outlook: Lamb Weston cut the FY24 Adjusted EPS forecast to $5.50 – $5.65 from $5.70 – $6.15 versus the consensus of $6.01.

The company slashed the FY24 sales outlook to $6.54 billion – $6.60 billion from $6.8 billion – $7 billion, against the consensus of $6.883 billion.

The company targets Adjusted EBITDA of $350 million to $375 million for the fiscal fourth quarter, with net sales of $1.69 billion- $1.75 billion, below the consensus of $1.841 billion.

Price Action: LW shares are trading lower by 16.9% at $84.00 on the last check Thursday.

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