Lamb Weston (LW) Benefits From Pricing & Expansion Efforts
Lamb Weston Holdings, Inc. LW continues to reap benefits from an effective pricing scenario. The company’s focus on global expansion efforts and bettering manufacturing capabilities have been key growth drivers. However, the provider of value-added frozen potato products is not immune to a rising cost environment.
Let’s delve deeper.
Favorable Pricing: Key Driver
Lamb Weston’s net sales are benefiting from robust price/mix, as witnessed during the second quarter of fiscal 2024. The price/mix rose 12%, which reflects gains from inflation-induced pricing actions in business units and a positive mix. In the North America segment, price/mix increased 14% on the carryover benefit of pricing actions undertaken during the fiscal 2023 and positive mix, stemming from continued gains from revenue growth management and other mix improvement efforts. In the International segment, price/mix advanced 10%.
Strategic pricing actions drove the company’s quarterly net sales, which amounted to $1,732.1 million, up 36% year over year. Net sales, excluding buyouts, are projected to increase 6.5-8.5% in the fiscal 2024, on a low double-digit percentage points increase in price/mix.
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Expansion Efforts on Track
Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. The company’s efforts to boost offerings and expand capacity enable the company to meet rising demand conditions for snacks and fries effectively.
Capital expenditures amounted to $566.5 million during the first half of fiscal 2024, owing to construction and equipment purchases as it continues to expand processing capacity in Idaho, Argentina and the Netherlands. In its last earnings call, management highlighted that its new greenfield processing facility in China is now operational. For the fiscal 2024, the company expects cash to be used for capital expenditures in the band of $900-$950 million.
Hurdles on the Way
Although Lamb Weston’s gross margin increased year over year in the fiscal second quarter, it was hurt to some extent by increased costs per pound. Escalated costs per pound reflect mid-single-digit cost inflation for key inputs like raw potatoes, grains, starches and labor. In its last earnings call, management highlighted that it expects fiscal third-quarter gross margin to be under pressure by escalated manufacturing costs, reflecting lower fixed cost coverage and other cost inefficiencies. Lamb Weston has been witnessing increased SG&A expenses for a while.
Well-chalked expansion efforts and effective pricing actions will likely help LW stay in investors’ good books.
The Zacks Rank #3 (Hold) stock has gained 26.6% in the past three months compared with the industry’s 12.4% growth.
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The Zacks Consensus Estimate for Sysco’s current fiscal year sales and earnings suggests growth of 4.1% and almost 8%, respectively, from the corresponding year-ago reported figure.
Nomad Foods NOMD, carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales suggests growth of 6.6% from the prior-year reported number. However, earnings estimates suggest a year-over-year decline of 2.3%.
Ingredion Incorporated INGR, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
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