Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lamb Weston Holdings Inc (LW, Financial) has integrated the acquisition of its former European joint venture.
- The company has started state-of-the-art processing facilities in China and Idaho.
- Lamb Weston Holdings Inc (LW) has implemented pricing actions to offset multiple years of high input cost inflation.
- The company has upgraded its IT infrastructure with a new ERP system.
- Lamb Weston Holdings Inc (LW) continues to drive supply chain productivity savings across its global production network.
Negative Points
- Sales and earnings performance fell well short of targets due to executional challenges and soft global demand for fries.
- Higher than anticipated market share losses and unfavorable mix impacted financial results.
- Soft restaurant traffic trends in both the US and key international markets contributed to lower sales.
- The company had to voluntarily withdraw a product, impacting financial performance.
- Lamb Weston Holdings Inc (LW) expects the industry supply-demand imbalance to persist through much of fiscal 2025.
Q & A Highlights
Q: Can you provide specifics on Lamb Weston's current capacity utilization and how it compares to the industry?
A: We are not disclosing our current capacity utilization rate. We have two new facilities becoming operational, which will have available capacity. Our sales teams are working to regain customers lost during the ERP transition, but the competitive environment remains challenging due to softening restaurant traffic trends.
Q: Are the pricing concessions and targeted investments aimed at regaining smaller customers or larger ones?
A: We are making strategic choices to invest back with customers to regain their business and trust, particularly those lost during the ERP transition. The competitive environment and restaurant traffic challenges are leading to industry capacity availability, necessitating these investments.
Q: Are you being more conservative or prudent with certain areas of guidance for 2025?
A: We are always prudent in our guidance. The prolonged decline in restaurant traffic trends has led us to take a cautious view for 2025. We expect traffic to eventually return to normal, but the current prolonged decline is unprecedented.
Q: Can you provide more details on the voluntary product withdrawal and its financial impact?
A: The product withdrawal was a decision we made to maintain product quality and integrity. It had a significant financial impact, but it was the right decision. We have made internal adjustments to ensure product quality going forward. The financial impact is expected to be contained within Q4 and Q1.
Q: How do you reconcile the expected volume growth with the challenging contracting environment and market share losses?
A: The volume growth in the second half of the year is expected to come from recent customer contract wins and a strong sales pipeline. We are seeing wins in the marketplace today, which gives us confidence in navigating the first half of the fiscal year.
Q: Why not delay or kick out further capacity expansions given the current environment?
A: The capacity expansions were decided upon years ago, and it would be more costly not to complete them. We are evaluating all areas of the company to manage costs based on current operating conditions.
Q: How do you expect the North America potato crop to impact your volume assumptions?
A: We contract our potato crop based on forecasted volume, taking a prudent approach. We believe we are balanced for now but will manage it as we go through the fiscal year.
Q: Can you provide more color on the international segment's margins and competitive environment?
A: The international segment's margins were impacted by the product withdrawal and a competitive environment similar to North America. We are making price investments where it makes sense and looking to pass through price inflation due to the poor crop in Europe.
Q: What are your expectations for restaurant traffic trends in your guidance?
A: We assumed consistent restaurant traffic trends being down in the first half of the year, with slight improvement in the back half.
Q: Are you back to shipping to the customer affected by the product withdrawal?
A: Yes, we are back to shipping to the customer.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
