Lamb Weston (LW) Gains on Pricing Actions Amid High Costs
Lamb Weston Holdings, Inc. LW is on track with boosting offerings and expanding capacity. The provider of value-added frozen potato products has been benefiting from strategic pricing efforts amid an inflationary cost landscape.
The Zacks Consensus Estimate for Lamb Weston’s first-quarter fiscal 2024 sales and earnings per share (EPS) suggests 41.2% and 44% growth, respectively, from the year-ago quarter’s reported numbers. The Zacks Rank #3 (Hold) stock has gained 9.2% year to date against the industry’s 9.2% decline.
Let’s discuss further.
Pricing Actions Drive Growth
Lamb Weston’s net sales have benefited from robust price/mix, as witnessed during the fourth quarter of fiscal 2023. The price/mix rose 24%, reflecting gains from pricing actions in every core business unit to counter input and manufacturing cost inflation. In the Global, Foodservice and Retail segment, price/mix grew 28%, 13% and 35%, respectively. Efficient pricing is likely to protect margins.
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Expansions 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. Capital expenditures totaled $736 million during fiscal 2023 on construction costs as the company is on track to expand its processing capacity. In its last earnings call, management highlighted that it broke ground on a 250 million-pound capacity expansion. The expansion will enhance the company’s ability to cater to the growing South American market. Management also stated that it made progress on its expansion projects across China and the Netherlands, which are expected to come online in the next 18 months.
Cost Woes: A Concern
Although Lamb Weston’s quarterly gross profit increased year over year in the fiscal fourth quarter, the metric was hurt by escalated costs. Increased costs per pound and reduced sales volumes were hurdles for the metric. Increased costs per pound reflect high-single-digit cost inflation for critical inputs like raw potatoes, energy, labor, edible oils and ingredients, including grains and starches.
The inflationary environment and other macro pressures on consumers continue to hamper traffic in specific restaurant channels. The company anticipates the near-term demand to be somewhat hampered owing to dynamic restaurant traffic trends and persistent macro pressures on the consumer. That said, management is on track with strategies like pricing actions and enhancing business and product mix to counter input cost inflation.
Appetizing Food Picks
MGP Ingredients MGPI, which produces and markets ingredients and distillery products, currently sports a Zacks Rank #1 (Strong Buy). MGPI has a trailing four-quarter earnings surprise of 18% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings per share suggests growth of 5.8% and 10.4%, respectively, from the corresponding year-ago reported figures.
Flowers Foods FLO emphasizes providing high-quality baked items. The company currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 2.3%.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales suggests growth of 6.7% from the year-ago period’s actuals. FLO has a trailing four-quarter earnings surprise of 7.6% on average.
McCormick & Company MKC, a manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2. The company has an expected EPS growth rate of 7.5% for three-five years.
The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests 6.4% and 5.1% growth, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 4.2%, on average.
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