4 Reasons Why Lamb Weston is Set to Maintain Its Robust Trend
Lamb Weston Holdings, Inc. LW has impressed with a solid bull-run of 19.4% in a year, against the industry’s slump of 18.7%. The company has been gaining from its splendid past record, which was retained in the second quarter of fiscal 2019. In fact, management’s raised outlook further added to investors’ optimism.
That said, let’s delve deeper into the factors that are likely to continue driving this Zacks Rank #2 (Buy) stock.
Solid Price/Mix
Lamb Weston’s top line has been gaining from robust price/mix, evident from the fact that this drove sales across all segments in the second quarter. Notably, Lamb Weston’s sales grew on the back of a 6% rise in price/mix. This was backed by gains from various new pricing structures related to recently renewed deals in the Global unit, and continued impacts of pricing and mix enhancement initiatives undertaken in the Retail and Foodservice units. Strong price/mix in the first half of fiscal 2019 is likely to augment sales growth in fiscal 2019.
Global Unit Strength
Global segment accounted for nearly half of Lamb Weston’s second-quarter sales and remains a major driver for the future. Sales at this segment jumped 13% to $470 million, thanks to better price/mix and higher volumes. Volumes increased due to strong sales to consumers in the United States and core international regions, and gains from LTOs. Price/mix was fueled by ongoing impacts of pricing actions undertaken last year, and favorable mix. Strength in pricing at this segment is likely to remain a tailwind to Lamb Weston’s sales growth in fiscal 2019.
LTOs Bode Well
Lamb Weston’s sales have been increasing year over year ever since it completed a complete fiscal, post its spin-off from Conagra Brands CAG. The company has been largely benefitting from its limited time offers or LTO innovations, which form key part in the company’s long-term prospects. Incidentally, LTOs helped drive growth and market share gains in fiscal 2018. Also, in the second quarter of fiscal 2019, LTOs accounted for significant volume growth in the Global segment, in particular. Management remains positive about further prospects from new LTOs, as it expects the company’s new French Fries line to provide it more flexibility to enter into tie-ups with customers and boost traffic.
Raised Outlook on Robust Q2
Driven by such upsides, Lamb Weston delivered robust second-quarter fiscal 2019 results, wherein both top and bottom lines grew year over year and beat the Zacks Consensus Estimate for the ninth straight time. While earnings in the quarter gained from lower tax rate and 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, while reporting second-quarter results, the company stated that it expects the operating environment to remain favorable in the remainder of fiscal 2019. All said, the company raised its outlook, given a robust first-half show and operating momentum. In fiscal 2019, management expects net sales to increase mid-to-high-single digits compared with the previous view of mid-single-digit increase. Adjusted EBITDA (including unconsolidated joint ventures) is now expected to range between $870 million and $880 million compared with the previous estimate of $860-$870 million.
Looking for More Food Stocks? Check These
McCormick & Company, Incorporated MKC has long-term earnings per share growth rate of 9% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nomad Foods NOMD, with long-term earnings per share growth rate of 11%, also carries a Zacks Rank #2.
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