Lamb Weston (LW) Q4 Earnings & Sales Top Estimates, Rise Y/Y
Lamb Weston Holdings, Inc. LW posted solid fourth-quarter fiscal 2023 results, with the top and the bottom line beating the Zacks Consensus Estimate. Net sales and earnings increased year over year. Results gained from improved pricing in every key segment and supply chain productivity savings.
Quarter in Detail
LW’s bottom line came in at $1.22 per share, surpassing the Zacks Consensus Estimate of $1.05. Earnings increased 91% from the year-ago quarter’s reported figure.
Net sales amounted to $1,694.9 million, up 47% year over year. The top line surpassed the Zacks Consensus Estimate of $1,653.8 million. Net sales (excluding the incremental sales attributable to buyouts) increased 14%.
Price/mix rose 24%, which reflects gains from pricing actions in every core business unit, undertaken to counter input and manufacturing cost inflation. Also, a favorable mix was an upside. We had expected a year-over-year price/mix increase of 32.2%. Volume fell 10%, which reflects on the company’s efforts to exit some lower-priced and lower-margin businesses. Soft demand owing to slowdown in casual and full-service restaurant traffic, inventory destocking by some customers across international markets and certain U.S. retail channels also led to the downside.
Lamb Weston Price, Consensus and EPS Surprise
Lamb Weston price-consensus-eps-surprise-chart | Lamb Weston Quote
Gross profit came in at $379.4 million, up $125.2 million from the year-ago quarter’s levels. Effective pricing actions aided the company’s gross profits. However, increased costs per pound and reduced sales volumes were hurdles. Increased costs per pound reflects high-single-digit cost inflation for key inputs like raw potatoes, energy, labor, edible oils, and ingredients including grains as well as starches. Further, reduced throughput at LW’s production facilities also increased costs. We had expected gross profit to come in at $383.9 million.
SG&A expenses escalated by $74.2 million to $192.4 million. Adjusted EBITDA (including unconsolidated joint ventures) jumped 59% to $318.1 million, courtesy of increased income from operations.
Segment Analysis
Sales in the Global segment increased 85% to $1,033.4 million. Price/mix grew 28% on gains from domestic and international pricing actions to counter inflationary pressures. Volume in the segment was hurt by the company’s efforts to exit some lower-priced and lower-margin business across international and domestic markets. Reduced shipments owing to inventory destocking was also a downside. The product contribution margin in the segment jumped 211% to $173.3 million.
Foodservice sales increased 4% to $404.9 million. Volumes declined 9% and the price/mix increased 13%. The price/mix benefited from pricing actions undertaken during fiscal 2023 to mitigate inflationary pressures. Volumes were hurt by incremental losses of certain lower-priced and lower-margin business and the slowdown in casual dining and other full-service restaurant traffic to some extent. The product contribution margin in the unit fell 2% to $139.1 million.
In the Retail segment, sales went up 25% to $220.6 million. The price/mix advanced 35% and volumes fell 10%. The price/mix benefited from pricing actions undertaken during fiscal 2023 in branded and private label portfolios to mitigate inflationary pressures. The product contribution margin surged 100% to $83.1 million.
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Other Financial Details
Lamb Weston ended the quarter with cash and cash equivalents of $304.8 million, long-term debt and financing obligations (excluding the current portion) of $3,248.4 million and total shareholders’ equity of $1,411.3 million. The company generated $761.7 million as net cash from operating activities for the 52 weeks ended May 28, 2023.
Capital expenditures amounted to $736 million during fiscal 2023. For fiscal 2024, the company expects cash used for capital expenditures in the band of $800-$900 million.
During fiscal 2023, management paid out dividends worth $146.1 million. The company repurchased 569,698 shares for $45 million.
Guidance
For fiscal 2024, management expects net sales in the range of $6.7-$6.9 billion. The guidance includes $1-$1.1 billion of sales attributed to the consolidation of LW EMEA.
Lamb Weston expects SG&A expenses in the band of $765-$775 million. Adjusted EBITDA (including unconsolidated joint ventures) is likely to come in the range of $1,450-$1,525 million. The company expects net income in the range of $725-$790 million. Diluted earnings per share (EPS) are envisioned in the range of $4.95-$5.40.
Management expects interest expenses of approximately $165 million for fiscal 2024 and an effective tax rate of 23-24%. Further, it anticipates depreciation and amortization expenses of nearly $325 million.
Shares of this Zacks Rank #3 (Hold) company have gained 13.3% in the past six months compared with the industry’s growth of 3.9%.
Some Better-Ranked Staple Bets
Here we have highlighted three better-ranked stocks, namely TreeHouse Foods, Inc. THS, Celsius Holdings CELH and McCormick & Company, Incorporated MKC.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank #1 (Strong Buy). THS has a trailing four-quarter earnings surprise of 49.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year’s sales suggests a decline of 12.4% from the year-ago reported numbers.
Celsius Holdings, which offers functional drinks and liquid supplements, carries a Zacks Rank #2 (Buy) at present. CELH delivered an earnings surprise of 81.8% in the last reported quarter.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year’s sales and earnings implies surges of 69.6% and 154.4%, respectively, from the prior-year numbers.
McCormick, which operates as a manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 4.2%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings suggests growth of 6.4% and 5.1%, respectively, from the year-ago reported numbers.
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