Lamb Weston Faces Management Overhaul Amid Investor Pressure

Lamb Weston Holdings, Inc. LW is facing pressure from JANA Partners, one of the company’s largest shareholders with more than 5% ownership. In the latest development, JANA Partners sent a letter to Lamb Weston, stressing that the latter needs major changes in its board and leadership. In the absence of any changes, JANA believes that LW should consider exploring strategic options, including a possible sale, to get the best value for its shareholders.Recent reports also suggested that Post Holdings POST has shown interest in acquiring Lamb Weston. The market is already responding to these developments, with LW’s shares up 3.7% on Monday.Lamb Weston Facing DifficultiesLamb Weston has been battling several fundamental challenges that are impacting its performance. In its first-quarter fiscal 2025 earnings call, management noted that restaurant traffic and frozen potato demand remain soft compared with supply. According to data from restaurant industry providers, Lamb Weston observed a slowdown in restaurant traffic during the fiscal first quarter.U.S. restaurant traffic, including the key quick-service restaurant (QSR) sector, declined by 2% year over year, with QSR chains specializing in hamburgers seeing a nearly 3% drop, impacting fry consumption. Outside the United States, key international markets experienced softer traffic in the fiscal first quarter compared with the fourth quarter of fiscal 2024. Lamb Weston expects this supply-demand imbalance, driven by declining traffic, to persist through fiscal 2025.Lamb Weston continues to witness lower volumes in the first quarter of fiscal 2025. The quarterly volume fell 3% caused by customer share losses, weak restaurant traffic and the company's strategic decision last year to exit lower-priced and lower-margin businesses in Europe. In addition, a voluntary product withdrawal in late fiscal 2024 impacted results, though growth in key international markets helped offset the volume decline.Lamb Weston is also grappling with high costs that are impacting its performance. In the first quarter, the adjusted gross profit dropped $137.2 million to $353.1 million due to increased manufacturing costs per pound, a $39 million loss from a voluntary product withdrawal, lower sales volumes and higher warehouse expenses. The rise in manufacturing costs was caused by input cost inflation like higher raw potato costs, production inefficiencies and $15.5 million in increased depreciation expenses. The adjusted EBITDA fell $122.9 million to $289.9 million in the fiscal first quarter, primarily due to lower sales and a decline in adjusted gross profit.Image Source: Zacks Investment ResearchWhat to Expect From LW in FY25?Lamb Weston anticipates achieving the low end of its adjusted EBITDA target range of $1,380 million to $1,480 million during fiscal 2025. Higher manufacturing costs per pound, net of restructuring savings, a less favorable product mix and slightly higher-than-expected investments in pricing and trade are expected to offset reductions in adjusted SG&A expenses. In addition, management revised its adjusted earnings per share (EPS) guidance downward. The company expects adjusted EPS of $4.15-$4.35, reflecting a reduced adjusted EBITDA guidance range. The adjustment also accounts for increased estimates for interest expenses and the effective tax rate for the full year. Previously, the company projected adjusted EPS of $4.35 to $4.85 for fiscal 2025.What’s Next for LW Amid Challenges?Lamb Weston faces a critical crossroads as JANA Partners pressures the board for leadership changes and strategic reforms. With its second-quarter fiscal 2025 earnings report approaching, the market is closely watching whether the company will prioritize new leadership, adopt a clear strategic vision or consider a sale to unlock shareholder value. The coming months will be pivotal as Lamb Weston seeks to address operational missteps and strategic uncertainty to stabilize its path and restore investor confidence.Shares of the Zacks Rank #4 (Sell) company have dropped 23.4% in the past year compared with the industry’s decline of 1.6%.Some Solid Staple BetsWe have highlighted some better-ranked stocks from the Consumer Staples sector, namely Ingredion Incorporated INGR and Freshpet FRPT.Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 228.6%, respectively, from the year-ago period’s reported figure.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Freshpet, Inc. (FRPT): Free Stock Analysis Report Ingredion Incorporated (INGR): Free Stock Analysis Report Post Holdings, Inc. (POST): Free Stock Analysis Report Lamb Weston (LW): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks