Lamb Weston (LW, Financial) saw its stock rise by 5% following its Q1 earnings report. The Idaho-based frozen potato product supplier exceeded expectations on both EPS and revenue. However, it significantly reduced its FY25 EPS guidance to $4.15-4.35 from $4.35-4.85, while maintaining revenue guidance at $6.60-6.80 billion. The company also aims for the low-end of its adjusted EBITDA guidance and announced a restructuring plan.
- Q1 revenue declined 0.7% year-over-year to $1.65 billion, driven by a 3% volume decline. Factors included customer share losses, weak restaurant traffic, exiting lower-margin European business, and a voluntary product withdrawal in late FY24. Growth in key international markets partially offset the decline.
- Lamb Weston (LW, Financial) noted rapid changes in the operating environment during FY24, with global restaurant traffic and frozen potato demand softening. This trend accelerated in the latter half of FY24 and early FY25, increasing industry capacity in North America and Europe. The supply/demand imbalance is expected to persist through much of FY25.
- On a positive note, QSR hamburger chains have ramped up promotional activities to boost restaurant traffic, which should also drive French fry sales. LW's Q1 results, after two significant misses in Q3-Q4, were likely aided by these promotions.
- The restructuring plan includes permanently closing its Connell, WA manufacturing facility, temporarily curtailing certain production lines and schedules in North America, a 4% headcount reduction, and eliminating some unfilled positions. LW also reduced its FY25 cap-ex outlook to $750 million from $850 million.
Lamb Weston (LW) has had a challenging few months. The stock surged from early 2022 to mid-2023 but faced pressure over the past year, including poor Q3-Q4 results due to slowing demand and less frequent dining out. However, recent promotions by hamburger chains could improve volumes. Despite the lowered guidance, the stock is holding up, with investors likely encouraged by the modest EPS beat and the reaffirmed FY25 revenue guidance. The restructuring plan is also seen as a positive step to control costs.
