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Lamb Weston (LW) Beats Earnings in Q4, Sales Improve Y/Y

Zacks Equity Research

Lamb Weston Holdings, Inc. LW delivered impressive fourth-quarter fiscal 2019 results, with the top and the bottom line growing year over year and beating the Zacks Consensus Estimate. Sturdy performance in the Global and Foodservice units boosted the quarterly results. Moreover, management provided an optimistic view for fiscal 2020. Let’s take a closer look.

Quarter in Detail

In fiscal fourth quarter, adjusted earnings of 74 cents surpassed the Zacks Consensus Estimate of 72 cents and rose 14% year over year. The upside was backed by higher income from operations as well as gains from lower taxes and BSW acquisition.

Net sales advanced 9% to $1,003.4 million, which surpassed the consensus mark of $967.5 million. Volumes grew 6% on the back of strength in the Global segment. Further, price/mix improved 3% owing to solid pricing strategies and better mix.

We note that following its spin-off from Conagra Brands CAG in November 2016, the company has been delivering positive earnings and sales surprise.

Lamb Weston Holdings Inc. Price, Consensus and EPS Surprise

Lamb Weston Holdings Inc. Price, Consensus and EPS Surprise

Lamb Weston Holdings Inc. price-consensus-eps-surprise-chart | Lamb Weston Holdings Inc. Quote

Gross profit increased 7.6% to $250.5 million, backed by price mix, greater volumes and savings from supply-chain efficiency. These were somewhat countered by higher transportation, input and manufacturing costs. Further, gross profits were hurt by by costs worth $3 million related to the company’s new french fry production line in Oregon.

SG&A expenses increased 3.3% to reach $102.5 million due to higher IT and infrastructure-related costs as well as greater sales and marketing investments. However, advertising and promotional costs declined year over year.

Adjusted EBITDA (including unconsolidated joint ventures) increased 6% to $215.4 million, driven by higher operating income and benefits from BSW acquisition.

Segment Analysis

Sales in the Global segment grew 13% to $526.5 million, courtesy of better price/mix and higher volumes. Volumes increased 10% on strong sales to strategic consumers in the United States and core international regions as well as gains from limited time product offerings (or LTOs). Price/mix increased 3%, courtesy of pricing adjustments in multi-year contracts.

Product contribution margin in the segment increased 11% to $110.7 million, backed by higher volumes, supply chain efficiencies and price/mix gains. These were partially countered by high input, transportation and manufacturing costs.

Foodservice sales increased 7% to $313.1 million on the back of improved price/mix. The upside was driven by consistent favorable impact of strategic pricing actions undertaken in the last year and better mix. Moreover, volumes inched up 1% on the back of branded products growth. Product contribution margin rose 16% to $108.3 million, owing to improved price/mix and supply chain efficiencies that compensated for higher costs.

In the Retail segment, sales went up 3% to $129.2 million. The upside can be attributed to volume growth of 4%, stemming from increased branded and private label products sales. However, price/mix dropped 1% due to higher trade support. Product contribution margin inched down 1% to $21 million, thanks to lower price/mix.

Other Financial Details

Lamb Weston ended the quarter with cash and cash equivalents of $12.2 million, long-term debt (excluding current portion) of $2,280.2 million and total shareholders’ deficit of $4.6 million.

The company generated $680.9 million as net cash from operating activities during fiscal 2019. Capital expenditures for the fiscal amounted to $334.2 million, majority of which were due to the construction of new production line in Oregon.

In fiscal 2019, the company returned almost $145.1 million through dividends and share repurchases. At the end of the quarter, the company had $218.2 million remaining under its $250-million share repurchase authorization.


Management is pleased with its quarterly results, which reflects that its strategic endeavors are yielding well. Going ahead, management expects favorable market conditions to prevail and fuel performance. Moreover, it expects consistent gains from volumes and price/mix, which are likely to mitigate the adverse impacts of input cost inflation.

Further, expenses are anticipated to rise considerably due to planned investments undertaken to support upgrade of information systems. Nevertheless, in the long run, such well-chalked investment plans are likely to boost the company’s operating efficiencies.

That said, management issued a favorable outlook for fiscal 2020, considering the gains from 53rd week. It expects net sales to increase mid-single digits, driven by higher volumes and price/mix.

Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $950-$970 million. Interest costs are projected to be roughly $110 million. Further, the company plans to use cash of $275 million for capital expenditures.

Price Performance & Zacks Rank

Shares of the company have declined 2.7% in the past three months compared with the industry’s rise of 3.4%. Currently, Lamb Weston has a Zacks Rank #3 (Hold).

Looking for More Food Stocks? Check These

The J. M. Smucker Company SJM, with a Zacks Rank #2 (Buy), has long-term earnings growth rate of 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB, with a Zacks Rank #2, has long-term earnings growth rate of 5%.

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