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Lamb Weston's (LW) Q4 Earnings to Gain From LTOs & Pricing

Zacks Equity Research

Lamb Weston Holdings, Inc. LW is slated to release fourth-quarter fiscal 2019 results on Jul 23. This provider of frozen potato products boasts a splendid surprise history. Notably, the company has outperformed earnings and sales estimates since its spin-off from Conagra Brands CAG. Let’s see how things are placed ahead of the upcoming quarterly release.

Estimates Look Bright

The Zacks Consensus Estimate for fiscal fourth-quarter earnings has been stable in the past 30 days at 72 cents per share. The figure indicates a rise of 10.8% from earnings delivered in the year-ago quarter.

The consensus mark for revenues is pegged at $967.5 million, suggesting an improvement of 5.4% from the year-ago quarter’s tally.

LTO’s, Pricing & Other Growth Catalysts

Lamb Weston is benefitting from limited time offers or LTO innovations.  Incidentally, LTOs are aiding significant volume growth in the Global segment, which is boosting revenues. Management is positive about further prospects from new LTOs. That said, gains from LTOs are expected to drive performance in the forthcoming quarterly results.

Speaking of the Global segment, the unit contributes a major portion to the company’s overall sales and is a key growth driver. The segment is gaining from robust price/mix and higher volumes.  Price/mix is being fueled by ongoing impacts of pricing actions undertaken in 2018 and favorable mix. Also, strong sales to consumers in the United States and core international regions are boosting performance of the segment. Consistency of such trends is likely to augment sales during the fourth quarter.

Moving on, efficient pricing strategies are fueling performance in the Retail and Foodservice units.  We expect pricing to continue supporting the company’s performance in fiscal fourth quarter.

Further, the company is focused on making investments to enhance capacity and improve customer services. Also, favorable demand conditions are adding glimmer to Lamb Weston business.  

All these factors combined with management’s optimistic view for fiscal 2019 keep us encouraged about sturdy results in fiscal fourth quarter.

Any Hiccups in the Path?

Lamb Weston’s SG&A expenses have been rising year over year for the past few quarters. For fiscal 2019, management expects SG&A costs to increase considerably due to planned investments. Moreover, the company expects increased transportation, warehousing, input and manufacturing costs to persist. Also, a tough operating environment in Europe, stemming from poor potato harvest, is likely to exert pressure on the quarterly performance.

Nevertheless, we expect Lamb Weston to easily tide over these hurdles on the back of the aforementioned sturdy growth drivers.  

What Does the Zacks Model Say?

Our proven model shows that Lamb Weston is likely to beat bottom-line estimates in the fourth quarter.  For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lamb Weston’s Earnings ESP of +2.31% combined with its Zacks Rank #3 makes us reasonably confident about an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks Poised to Beat Earnings Estimates

Estee Lauder EL has an Earnings ESP of +6.58% and a Zacks Rank #3.

Philip Morris International PM has an Earnings ESP of +0.38% and a Zacks Rank #3.

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