Lamb Weston Stock Tumbles on Q2 Earnings Miss, Lowered FY25 View

Lamb Weston Holdings, Inc. LW posted dismal results for the second quarter of fiscal 2025, with the top and the bottom lines declining year over year. Quarterly net sales and earnings missed the Zacks Consensus Estimate. LW’s shares tumbled 21.7% in the premarket trading session today.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.LW’s bottom line came in at 66 cents, missing the Zacks Consensus Estimate of $1.02. The metric declined 54% due to reduced adjusted income from operations, increased effective tax rate and higher interest expense.Net sales amounted to $1,600.9 million, missing the Zacks Consensus Estimate of $1,672.7 million. The top line fell 8% year over year.Lamb Weston’s results fell below expectations due to higher-than-expected manufacturing costs and weaker volumes, while price/mix and operating expenses were in line with targets. Looking ahead, the company anticipates challenging conditions will persist through the remainder of fiscal 2025 and into fiscal 2026. These challenges are driven by an accelerated pace of capacity additions and continued softening in global frozen potato demand, mainly outside North America, until demand improves and capacity expansion stabilizes. As a result, Lamb Weston is lowering its financial targets for fiscal 2025.Lamb Weston Price, Consensus and EPS Surprise Lamb Weston price-consensus-eps-surprise-chart | Lamb Weston QuoteLW’s Quarterly Results: Key Metrics & InsightsLamb Weston’s volume fell 6% due to weak global restaurant traffic trends, customer share losses offset by gains, and the ongoing impact of the company’s strategic decision last year to exit certain lower-priced and lower-margin businesses in Europe. Our model suggested a volume decrease of 2.3% in the quarter.Price/mix decreased by 2%, thanks to planned investments in pricing and trade support to boost volume retention in North America, pricing adjustments in key international markets due to increased competition, and an unfavorable mix of channels and products. However, the decline was partially offset by the positive impact of inflation-driven price increases in the EMEA region. We expected the price/mix to decline 1.3% in the quarter.The adjusted gross profit decreased by $134.9 million, reaching $343.5 million. This decline was due to unfavorable price/mix, increased manufacturing costs per pound, and reduced sales volumes. The increased manufacturing costs per pound were due to input cost inflation, particularly higher raw potato prices, inefficiencies, and increased transportation and warehousing costs. In addition, $15.8 million in higher depreciation expense, mainly linked to the company’s recent capacity expansions in China and the United States, contributed to the rise in costs.Adjusted selling, general and administrative (SG&A) expenses fell $12.2 million year over year, totaling $165.2 million, despite an additional $6.5 million in non-cash amortization and expenses related to the new enterprise resource planning system. The decline was driven by savings from expense reduction initiatives, including those from the Restructuring Plan, lower performance-based compensation and benefits accruals, and reduced net investments in information technology. These savings more than offset the impact of inflation.Adjusted EBITDA decreased by $95 million, totaling $281.9 million due to reduced net sales and a decline in adjusted gross profit.LW Provides Second-Quarter Insights by SegmentNet sales in the North America segment decreased by $95 million to $1,072.1 million. Volume fell by 5% due to reduced restaurant traffic in the United States and customer share losses in away-from-home channels. Price/mix fell by 3%, thanks to planned investments in pricing and trade support in all sales channels to attract and retain volume, as well as an unfavorable channel and product mix.Segmental adjusted EBITDA dropped by $54.6 million, reaching $266.7 million. This decline was due to negative price/mix, lower sales volumes and increased manufacturing costs per pound.Net sales in the International segment decreased by $36.2 million to $528.8 million. Volume dropped by 6% due to declining or sluggish restaurant traffic in key international markets, customer share losses (net of gains), and the ongoing impact of the company’s decision to exit certain lower-priced and lower-margin businesses in Europe last year. Price/mix remained flat year over year, with pricing actions in key international markets, driven by a more competitive environment, offset by the benefits of inflation-driven price increases in the EMEA region.Segmental adjusted EBITDA declined by $52.8 million, totaling $47.4 million. This decrease was driven by increased manufacturing costs per pound and reduced volumes.Lamb Weston’s Financial Health SnapshotThe company ended the quarter with cash and cash equivalents of $79 million, long-term debt and financing obligations (excluding the current portion) of $3,693.6 million and total shareholders’ equity of $1,632.8 million.The company generated $429.3 million as net cash from operating activities for the 26 weeks ending Nov. 24, 2024, wherein capital expenditures amounted to $486.4 million.Management paid out dividends worth $51.6 in the quarter. The company declared a quarterly dividend of 37 cents per share on common stock, marking a 1-cent increase. The dividend will be paid on Feb. 28, 2025, to its shareholders of record as of Jan. 31, 2025.In December 2024, the company approved a $250 million increase to the existing $500 million share repurchase authorization, raising the total to $750 million. The company has shares worth $558 million remaining under its current buyback plan.In other news, Lamb Weston has appointed Michael J. Smith as president and chief executive officer (CEO), as well as a member of the company’s board of directors, effective Jan. 3, 2025. Mr. Smith will succeed Thomas P. Werner, who is stepping down from his role as CEO.Image Source: Zacks Investment ResearchLamb Weston’s Restructuring Plan UpdateOn Oct. 1, 2024, the company unveiled a restructuring plan aimed at improving operational efficiency, reducing costs and enhancing cash flow. The plan involves the permanent closure of a manufacturing facility, temporary curtailment of certain production lines and schedules across North America, as well as reductions in employee headcount, operating expenses and capital expenditures. The company anticipates recognizing pre-tax charges of $190 million to $210 million related to the restructuring. Actions under the plan are expected to be completed by the end of the fourth quarter of fiscal 2025, with estimated pre-tax cost savings of approximately $55 million and a reduction in working capital for fiscal 2025.What to Expect From LW in FY25?The company has revised its annual net sales target range to $6.35-$6.45 billion, down from the previous range of $6.6 billion to $6.8 billion. This adjustment reflects the higher competitive pressures on price/mix and volume in the International unit, incremental challenges in North America and the financial performance during the fiscal second quarter. LW is targeting net sales of $3.1-$3.2 billion for the second half of fiscal 2025, representing growth of roughly 1% to 4% compared to the prior year period. This growth is expected to be driven primarily by higher volume.The company has revised its net income target to a range of $330 million to $350 million and its earnings per share (EPS) target to $2.30 to $2.45. Previously, management had set a net income range of $395 million to $445 million and an EPS range of $2.70 to $3.15.The company has lowered its adjusted EBITDA target range from $1,170 million to $1,210 million, down from the previous target of nearly $1,380 million. This adjustment reflects its fiscal second-quarter financial performance, a reduction in projected sales and higher manufacturing costs.Lamb Weston has lowered its adjusted net income guidance to $440-$460 million, with adjusted EPS revised to $3.05 to $3.20. This change is due to a reduced projection for net sales and adjusted gross profit, as well as an increased effective tax rate. Earlier, management had estimated adjusted net income of $600 million to $615 million and adjusted EPS of $4.15 to $4.35.The company expects to achieve the upper end of its adjusted SG&A target range, estimated at $680 million to $690 million. In addition, management projects depreciation and amortization expenses of around $375 million, an effective tax rate of approximately 28% for fiscal 2025, and cash used for capital expenditures, excluding acquisitions, to be about $750 million.Shares of this Zacks Rank #4 (Sell) company have lost 24.3% in the past year compared with the industry’s 0.8% decline.Some Solid Staple BetsWe have highlighted three better-ranked stocks from the Consumer Staples sector, namely Ingredion Incorporated INGR, Freshpet FRPT and US Foods Holding Corp. USFD.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.US Foods, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to food service customers in the United States. It currently carries a Zacks Rank #2. USFD delivered a negative earnings surprise of 0.4% in the last reported quarter.The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.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 US Foods Holding Corp. (USFD): 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