Lamb Weston (LW) Down 4.1% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Lamb Weston (LW). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lamb Weston due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lamb Weston Beats on Q3 Earnings & Sales, Raises Outlook
Lamb Weston delivered solid third-quarter fiscal 2019 results, wherein adjusted earnings of 95 cents crushed the Zacks Consensus Estimate of 82 cents and rose 4.4% year over year. Bottom-line growth was backed by higher operating income.
Net sales advanced 7% to $926.8 million, which also surpassed the consensus mark of $901 million. The top line was fueled by improved price/mix, owing to solid pricing strategies and better mix. Moreover, volumes grew 4%, courtesy of strength across the Global segment.
Gross profit increased 12.8% to $273.4 million, as improved price mix, greater volumes and supply-chain efficiency savings compensated for increased transportation expenses, and input and production cost inflation.
Adjusted SG&A expenses increased $8.2 million on account of escalated IT and infrastructu-related costs, and greater sales and marketing investments. Moreover, advertising and promotional costs grew year over year.
Adjusted EBITDA (including unconsolidated joint ventures) increased 7% to $253.2 million, driven by higher operating income.
Segment Analysis
Sales at the Global segment grew 11% to $498.2 million, thanks to 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 limited time product offerings (or LTOs). Product contribution margin at the segment increased 13% to $128.8 million.
Foodservice sales increased 5% to $265.5 million on the back of improved price/mix, driven by continued impacts of strategic pricing actions undertaken last year and better mix. Moreover, volumes inched up 1% on the back of brand products growth. Product contribution margin rose 6% to $94.8 million.
At the Retail segment, sales slipped 1% to $129 million. This could be attributable to lower volumes. However, price/mix improved on better mix. Product contribution margin was down 4% to $29.1 million.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $17.2 million, long-term debt (excluding current portion) of $2,288.6 million and total shareholders’ deficit of $56.2 million.
The company generated $444.4 million as net cash from operating activities during the first three quarters of fiscal 2019.
During the quarter, adjusted equity method investment earnings from unconsolidated joint ventures in the United States and Europe fell $8.8 million, owing to higher pricing and reduced sales volume in Europe.
Guidance
Management is pleased with its quarterly results, which reflected strength in Asia and North America. These helped the company counter hurdles related to poor potato crop in Europe. Management 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 compared with the previous view of mid-to-high-single digits.
Adjusted EBITDA (including unconsolidated joint ventures) is expected to range between $895 million and $905 million compared with the previous estimate of $870-$880 million. Gross profit growth is expected to exceed net sales growth. SG&A expenses are anticipated to rise considerably, due to planned investments undertaken to support upgrade of information systems and enterprise resource planning infrastructure. Also, the company plans to invest more toward enhancing innovations, sales, marketing and other functional capabilities to augment operating efficiencies and fuel growth.
Interest costs are projected to be roughly $110 million. Further, the company plans to use cash of $350 million for capital expenditures. Also, management anticipates equity method investment earnings to fall year over year on account of considerably higher raw potato prices in Europe.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Lamb Weston has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Lamb Weston has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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