Lamb Weston Holdings, Inc. (LW Quick QuoteLW - Free Report) appears well-placed for growth. The company has been benefiting from the continued recovery in its Foodservice segment and a focus on capacity expansion endeavors. Most importantly, the company’s robust price/mix has been aiding it and is likely to be a driver amid the rising cost inflation. We note that inflation is serving as a major headwind for the company’s costs as well as the demand for fries.

The abovementioned factors were witnessed in the company’s fourth-quarter fiscal 2022 results, wherein the top and bottom lines increased year over year and cruised past the respective Zacks Consensus Estimate. Results gained from the robust price/mix undertaken to counter the prevalent input, manufacturing and transportation cost inflation.

Let’s delve deeper.

What’s Working Well for Lamb Weston?

Lamb Weston has been benefiting from a recovery in the Foodservice business. In the fourth quarter of fiscal 2022, Foodservice sales soared 21% to $388.4 million. Volumes benefited from the continued rebound in demand at full-service restaurants and non-commercial channels like lodging and hospitality, healthcare, schools and universities, sports and entertainment and workplace environments. However, this was countered by reduced shipments due to supply-chain headwinds, including labor restrictions. That said, the price/mix jumped 24% and gained from product and freight pricing actions to counter inflation.

Lamb Weston’s top line has also been benefiting from the robust price/mix, as witnessed during the fourth quarter of fiscal 2022. The price/mix increased 15% in the quarter. The price/mix increased 10% in the Global segment, 24% in the Foodservice segment and 22% in the Retail segment. Net sales growth in fiscal 2023 is likely to be backed by pricing actions to counter the significant input and transportation cost inflation and an improved volume and mix.

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Elevated Cost Concerns

Although LW’s fourth-quarter fiscal 2022 gross profit increased year over year, the metric was hurt by escalated costs. Escalated manufacturing and distribution costs on a per-pound basis, along with reduced sales volumes, were a concern for the metric. Increased costs per pound reflected double-digit cost inflation from key inputs, mainly including raw materials like edible oils and ingredients, as well as escalated transportation, packaging and labor costs. Higher costs per pound were also a result of labor and commodities shortages on production run rates. Such cost increases were somewhat offset by supply-chain productivity savings.

Management expects the gross margin to remain under pressure in the first half of fiscal 2023 due to considerable inflation for key production inputs, transportation and packaging and rising raw potato costs on a per-pound basis. While the company is undertaking robust pricing actions, it is likely to lag inflation and the effect of elevated raw potato costs (per pound). The gross margin is also likely to bear the adverse impacts of supply-chain hurdles, resulting in operational bottlenecks like labor and commodities shortages. That said, the gross margin is expected to improve and reach normalized annual levels of 25-26% in the second half of the fiscal.

In the fourth quarter of fiscal 2022, SG&A expenses escalated by $19.1 million to $118.2 million due to elevated compensation expenses and contribution to the Lamb Weston charitable foundation. In fiscal 2023, Lamb Weston expects SG&A expenses in the band of $475-$500 million, indicating greater investments to upgrade information systems and enterprise resource planning infrastructure, together with escalated compensation and benefit costs.

However, management’s top and bottom-line guidance for fiscal 2023 suggests growth on a year-over-year basis.

All’s Well That Ends Well

For fiscal 2023, management expects net sales growth in the band of $4.7-$4.8 billion, suggesting growth of 15-17%. Adjusted EBITDA (including unconsolidated joint ventures) is likely to come in the range of $840-$910 million. The net income is anticipated in the range of $360-$410 million. Diluted earnings per share (EPS) are envisioned in the band of $2.45-$2.85. In fiscal 2022, adjusted EBITDA (including unconsolidated joint ventures) and adjusted EPS came in at $726 million and 2.08, respectively. The bottom-line growth in fiscal 2023 is expected to be backed by solid sales and overall gross profit expansion.

Shares of this Zacks Rank #3 (Hold) company have rallied 32.5% in the past three months compared with the industry’s rise of 7%.

Solid Consumer Staple Stocks

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The Zacks Consensus Estimate for CHEF’s current financial-year EPS suggests significant growth from the year-ago reported number.

Campbell Soup, which manufactures and markets food and beverage products, carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 4.7% from the year-ago reported number.

General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. General Mills has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for GIS’ current financial-year sales suggests growth of 1.7% from the year-ago reported figure.