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Lamb Weston Plans Capacity Expansion, Set to Buy Ready Meals

Zacks Equity Research

Lamb Weston Holdings, Inc. LW has inked a deal to acquire one of Australia’s renowned frozen potato processing company — Ready Meals Pty Ltd.  The move is in sync with the company’s efforts to expand production capabilities and meet the rising demand for potato snacks. Let’s take a closer look.

Efforts to Boost Production Capacity

The Ready Meals buyout is expected to augment Lamb Weston’s global manufacturing network production capabilities by nearly 70 million pounds. Ready Meals, which sells products under the Harvest Choice brand, has its facility located in Hallam, Victoria. The acquisition is likely to to strengthen Lamb Weston’s presence in Australia.  

Post completion of the deal, Lamb Weston will account for 18 processing facilities globally apart from ownership in 8 facilities through joint-venture initiatives. Although the terms of the deal have not been disclosed, it is subject to certain closing conditions.   

Markedly, Lamb Weston is undertaking efforts to bolster production capabilities, as demand for snacks and fries are rising worldwide. Earlier, the company completed the expansion of a facility located at Hermiston, OR. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries.

Apart from capacity expansion, the company is striving to strengthen commercial networks and bolster portfolio through innovations. It also resorts to limited time offers (LTO) innovations to expand revenue prospects. Further, Lamb Weston is gaining from robust price/mix across most segments.

Rising Costs and Challenges in Europe are Worries

Despite the above-mentioned efforts to strengthen business, there are significant hurdles in Lamb Weston’s path that cannot be ignored. Notably, the company’s SG&A expenses have been rising for a while. For fiscal 2019, management expects SG&A costs to increase due to planned investments to support the upgrade of information systems and enterprise resource planning infrastructure. Additionally, the company expects transportation, input and manufacturing costs to increase in fiscal 2019.

This Zacks Rank #4 (Sell) company is also experiencing uncertainties in Europe. In fact, operations in the region are expected to remain dismal during fiscal 2019 and in the first half of fiscal 2020, thanks to poor potato harvest.

Such downturns have caused the company’s shares to decline around 16% in the past three months compared with the industry’s decline of 2.8%. Nevertheless, we expect the company’s expansion plans to cushion the headwinds and revive the stock in the forthcoming periods.

Looking for Consumer Staples Stocks? Check These

General Mills GIS, with long-term earnings per share growth rate of 7%, carries a Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Campbell Soup Company CPB, with long-term earnings growth rate of 5%, carries a Zacks Rank #2.

The Chefs' Warehouse CHEF, also with a Zacks Rank #2, has long-term earnings growth rate of 15%.

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