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Lamb Weston (LW) Queued for Q3 Earnings: Factors to Watch

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Lamb Weston Holdings, Inc. LW is likely to witness a decline in the top and bottom lines, when it reports third-quarter fiscal 2021 numbers on Apr 7. The Zacks Consensus Estimate for earnings has remained unchanged over the past 30 days at 53 cents per share, which indicates a plunge of 31.2% from the figure reported in the prior-year period. This producer, distributor and marketer of value-added frozen potato products has a trailing four-quarter negative earnings surprise of 3.7%, on average.

The Zacks Consensus Estimate for revenues is pegged at $822 million, suggesting a decline of 12.3% from the prior-year quarter’s reported figure.

Lamb Weston Holdings Inc. Price, Consensus and EPS 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

Key Factors to Note

Lamb Weston has been bearing the brunt of the adverse impacts of the pandemic on traffic at restaurants and other non-commercial foodservice customers such as lodging, hospitality, healthcare, schools and universities, to name a few. This has been denting demand in the away-from-home lines. Such challenges were witnessed in the company’s second-quarter fiscal 2021 results, wherein volumes fell 14% due to a decline in demand for frozen potato products in the away-from-home channel, stemming from restrictions on restaurants and other foodservice operations to curb the coronavirus spread. Also, reduced outdoor dining traffic in many American markets due to the cold weather hurt volumes.

On its last earnings call, management stated that it expects shipments to full-service restaurants in the Foodservice segment to be soft through the rest of the third quarter due to government restrictions regarding the pandemic and limitations on outside dining due to the cold weather. Shipments to non-commercial customers in the Foodservice segment are also likely to have remained weak throughout the third quarter. We note that a major resurgence in coronavirus cases in the United States and Europe has caused the government to levy more stern social limitations. This is likely to have a greater impact on traffic and demand.

Apart from these, high COVID-19-related costs have been weighing on Lamb Weston’s gross margin for the past few quarters now. The company saw input cost inflation in low-single digits in the last reported quarter. On its second-quarter earnings call, the company said that it anticipates continued incremental pandemic-led costs at its manufacturing, commercial, functional support and supply-chain operations. These include costs related to ensuring sanitization, and health and safety, increased transportation and warehousing expenses, and costs to retain functional support workers, among others. However, it is taking strong measures to curtail the cost structure and expand efficiencies in manufacturing as well as commercial operations.

Also, the company’s retail business has been strong amid the pandemic-led elevated at-home consumption. Incidentally, the company provided an update on the shipping trends for the first four weeks of the third quarter of fiscal 2021 ended Dec 27, 2020. In this regard, the company’s shipments in the United States were nearly 85% of the prior-year levels, driven by shipments to QSR and large full-service chain restaurants, as well as to customers served by the Retail segment. Additionally, Lamb Weston’s robust price/mix and focus on expanding the capacity have been key drivers.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Lamb Weston this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lamb Weston currently has a Zacks Rank #3 and an Earnings ESP of 0.00%.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season.

Hillenbrand HI has an Earnings ESP of +2.73% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Coty COTY has an Earnings ESP of +16.67% and a Zacks Rank #3.

Boston Beer SAM has an Earnings ESP of +9.58% and a Zacks Rank #3.

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