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Lamb Weston's (LW) Q2 Earnings Beat Estimates, Sales Rise Y/Y

Zacks Equity Research

Lamb Weston Holdings, Inc. LW delivered second-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate and rising year over year. Sturdy performance in the Global as well as other units boosted the quarterly results. Moreover, management raised its net sales and adjusted EBITDA guidance for fiscal 2020.

Let’s take a closer look.

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

 

Quarter in Detail

In fiscal second quarter, the company delivered adjusted earnings of 95 cents per share, up 19% year over year. The upside was backed by higher income from operations and gains of nearly 4 cents from BSW acquisition. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 85 cents.

Net sales came in at $1019.2 million, up 12% year on year and surpassing the consensus mark of $964.39 million. Volumes grew 10% on the back of strength in the Global and Foodservice segments coupled with gains from acquisition and favorable price/mix impacts. Additional shipping days related to Thanksgiving also contributed to top-line growth.

Gross profit increased 14.5% to $285.1 million, backed by price mix, greater volumes and lower transportation costs. These were somewhat countered by higher manufacturing costs stemming from maintenance and other related costs. Further, gross profits were hurt by higher input costs and depreciation expenses related to the company’s french fry production line in Oregon.

SG&A expenses increased 22.1% to $91.6 million due to higher incentive compensation expenses and investments in the company’s sales, marketing, operating as well assystems capabilities. Nevertheless, foreign exchange expenses declined year over year.

EBITDA (including unconsolidated joint ventures) increased 17.1% to $260.9 million, driven by higher operating income and benefits from BSW acquisition.

Segment Analysis

Sales in the Global segmen trose15% to $539.6 million. Volumes increased 14% on strong sales, gains from acquisitions and extra shipping days due to Thanksgiving holiday. Price/mix increased 1% courtesy of pricing adjustments in multi-year contracts. Product contribution margin in the segment increased 15% to $128.9 million, backed by higher volumes, lower transportation costs and price/mix gains.

Foodservice sales increased 9% to $304.9 million. Price/mix improved 4%, driven by consistent favorable impact of strategic pricing actions undertaken during the quarter and better mix. Moreover, volumes moved up 5% on the back of branded and distributor private label products growth. Product contribution margin rose 14% million to reach $111.3 million, owing to improved price/mix and volumes along with lower logistics cost.

In the Retail segment, sales went up 7% to $132.1 million. Volumes in the category went up 4%, stemming from increased Grown sales in Idaho as well as branded and private label products sales. Additional shipping days related to Thanksgiving also contributed to volume growth. Price/mix improved 3% owing to gains from pricing actions and favorable mix. Product contribution margin increased 10% to $28.5 million driven by improved price/mix and volumes as well as lower transportation cost.

Other Financial Details

This Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $23.8 million, long-term debt and financing obligations (excluding current portion) of $2,203.7 million as well as total shareholders’ equity of $201.1 million.

Lamb Weston generated $345.3 million as net cash from operating activities at the end of fiscal second quarter.

Guidance

Management is encouraged with its quarterly results, which indicates consistent growth in segments. The upside can be attributed togains from improved volumes and price/mix. Going ahead, management expects the operating environment to remain favorable and aid meeting set targets.

Moreover, management raised its net sales and adjusted EBITDA outlook for fiscal 2020. It expects net sales to increase at high end of mid-single digit rangefrom its previous guidance of a mid-single digits growth.

Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $965-$985 million, up from its previous guidance of $950-$970 million. Interest costs are projected to be nearly$110 million. Further, the company plans to use cash of $300 million for capital expenditures, excluding buyouts.

Price Performance

Shares of the company have rallied32% in the past six months compared with the industry’s rise of 5.2%.

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