Lamb Weston Holdings, Inc. LW is worth giving a shot, courtesy of its splendid past record that was retained in the company’s recently reported third-quarter fiscal 2019 results. The company continued to benefit from its growth initiatives, which have helped this Zacks Rank #2 (Buy) stock rise 6.2% in the past three months, outpacing the industry’s growth of 5.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s take a look at the factors driving Lamb Weston.
Focus on LTOs
Lamb Weston’s top line has been largely benefiting from its limited time offers or LTO innovations, which plays a key role in the company’s long-term prospects. Incidentally, LTOs helped drive growth and market share gains in fiscal 2018. Also, in the third quarter of fiscal 2019, LTOs accounted for significant volume growth in the Global segment. Management is positive about further prospects from new LTOs, as it expects the company’s new French Fries line to provide more flexibility to enter tie-ups with customers and boost traffic.
Strong Global Unit & Price/Mix to Aid Top Line
Global segment accounted for more than half of Lamb Weston’s third-quarter sales and is a major driver for the future. Sales at this segment increased 11% to $498.2 million, driven by better price/mix and higher volumes. Volumes increased due to strong sales to strategic consumers in the United States and core international regions, and gains from LTOs. Further, price/mix remained favorable across all Lamb Weston segments in the third quarter. In fact, the company’s sales grew on the back of a 3% rise in price/mix, which was backed by efficient pricing actions and improved mix. Continuity of such trends is likely to augment sales growth.
Raised Outlook on Robust Q3
Lamb Weston delivered robust third-quarter fiscal 2019 results, wherein both top and bottom lines grew year over year and beat the Zacks Consensus Estimate for the tenth straight time. Markedly, following its spin-off from Conagra Brands CAG in November 2016, the company has been delivering positive earnings and sales surprise. While earnings in the quarter gained from higher operating income, sales were backed by better price mix and higher volumes. Also, adjusted EBITDA surged year over year. The solid results reflect the success of Lamb Weston’s capital expansions, strength of its commercial and supply-chain networks, and focus on innovations.
Further, the company is on track with its pricing initiatives and efforts to enhance production capacity. Given a solid third quarter and favorable global demand, the company raised its sales and EBITDA outlook for fiscal 2019. For the fiscal, management now expects net sales to increase high-single digits. Adjusted EBITDA (including unconsolidated joint ventures) is expected to range between $895 million and $905 million. Gross profit growth is expected to exceed net sales growth.
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