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Lamb Weston (LW) Down More Than 40% in 6 Months: Here's Why
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Lamb Weston Holdings, Inc. (LW - Free Report) struggles with persistent execution difficulties both commercially and within the supply chain. Global softening in demand for frozen fries and substantial market share losses are hurting volumes. LW is grappling with high costs that are impacting its performance. Unimpressively, Lamb Weston came out with soft results for fourth-quarter fiscal 2024, following which it issued a lackluster outlook for first-quarter fiscal 2025.
The Zacks Rank #5 (Strong Sell) company’s shares have slumped 43.3% in the past six months against the industry’s 0.6% growth. The stock underperformed the Zacks Consumer Staple sector’s growth of 5.5% during this time.
Let’s delve deeper.
Challenging Operating Environment
LW is facing several fundamental challenges that are impacting its performance. Key issues include persistent execution difficulties both commercially and within the supply chain, compounded by a global softening in demand for frozen fries. The company's performance has been hindered by significant market share losses, higher-than-anticipated costs associated with voluntary product withdrawals and unfavorable product mix impacts. Additionally, it is grappling with softer restaurant traffic trends, which is further straining profitability. These factors collectively reflect a challenging operating environment that is impeding the company's ability to meet its financial targets and growth expectations.
These factors hurt LW’s fourth-quarter fiscal 2024 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Quarterly adjusted earnings dropped 40% on lower adjusted income from operations, higher effective tax rates and increased interest expenses. Net sales amounted to $1,611.9 million, down 5% due to disappointing volumes.
Image Source: Zacks Investment Research
Volume-Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in fourth-quarter fiscal 2024. Quarterly volume declined 8%, largely attributed to market share losses and the strategic exit from lower-priced, lower-margin businesses in Europe earlier this year. Approximately a quarter of the volume decline stemmed from weak restaurant traffic trends in North America and other key international markets. Traffic trends continue to remain challenging as consumers are still adapting to higher menu prices. The rest of the decline stemmed from a voluntary product withdrawal. In the first half of the fiscal 2025, management projects a potential low-to-mid single-digit decline in volume. This reflects the lingering impact of market share losses and soft restaurant traffic in the United States and key international markets.
High-Cost Environment
Lamb Weston has been grappling with high costs that are impacting its performance. In the fiscal fourth quarter, the company witnessed higher manufacturing costs and increased transportation and warehouse expenses, largely due to inflation in key inputs like raw potatoes and labor. Anticipated cost pressures from a potential below-average potato crop in Europe and ongoing investment in new facilities and IT infrastructure are expected to keep the cost environment difficult despite efforts to mitigate these through pricing actions.
Road Ahead Looks Tough
Looking ahead to the fiscal 2025, management anticipates another challenging year. The operating landscape remains dynamic, marked by softened global restaurant traffic and reduced demand for frozen potatoes due to ongoing menu price inflation. LW expects this supply-demand imbalance to persist throughout the fiscal 2025. Moreover, input cost inflation poses further financial pressure.
In first-quarter fiscal 2025, management anticipates a decline in sales in the mid-to-high single digits, with volume expected to decline mid-single digits. Additionally, the margin pressure will be compounded by higher cost per pound, an unfavorable product mix and increased investments in pricing and trade support in the fiscal first quarter.
The Zacks Consensus Estimate Vital Farms’ current financial-year earnings indicate growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings indicates growth of 4.3% and 11.5%, respectively, from the prior-year reported level.
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Lamb Weston (LW) Down More Than 40% in 6 Months: Here's Why
Lamb Weston Holdings, Inc. (LW - Free Report) struggles with persistent execution difficulties both commercially and within the supply chain. Global softening in demand for frozen fries and substantial market share losses are hurting volumes. LW is grappling with high costs that are impacting its performance. Unimpressively, Lamb Weston came out with soft results for fourth-quarter fiscal 2024, following which it issued a lackluster outlook for first-quarter fiscal 2025.
The Zacks Rank #5 (Strong Sell) company’s shares have slumped 43.3% in the past six months against the industry’s 0.6% growth. The stock underperformed the Zacks Consumer Staple sector’s growth of 5.5% during this time.
Let’s delve deeper.
Challenging Operating Environment
LW is facing several fundamental challenges that are impacting its performance. Key issues include persistent execution difficulties both commercially and within the supply chain, compounded by a global softening in demand for frozen fries. The company's performance has been hindered by significant market share losses, higher-than-anticipated costs associated with voluntary product withdrawals and unfavorable product mix impacts. Additionally, it is grappling with softer restaurant traffic trends, which is further straining profitability. These factors collectively reflect a challenging operating environment that is impeding the company's ability to meet its financial targets and growth expectations.
These factors hurt LW’s fourth-quarter fiscal 2024 results, with the top and the bottom line declining year over year and missing the Zacks Consensus Estimate. Quarterly adjusted earnings dropped 40% on lower adjusted income from operations, higher effective tax rates and increased interest expenses. Net sales amounted to $1,611.9 million, down 5% due to disappointing volumes.
Image Source: Zacks Investment Research
Volume-Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in fourth-quarter fiscal 2024. Quarterly volume declined 8%, largely attributed to market share losses and the strategic exit from lower-priced, lower-margin businesses in Europe earlier this year. Approximately a quarter of the volume decline stemmed from weak restaurant traffic trends in North America and other key international markets. Traffic trends continue to remain challenging as consumers are still adapting to higher menu prices. The rest of the decline stemmed from a voluntary product withdrawal. In the first half of the fiscal 2025, management projects a potential low-to-mid single-digit decline in volume. This reflects the lingering impact of market share losses and soft restaurant traffic in the United States and key international markets.
High-Cost Environment
Lamb Weston has been grappling with high costs that are impacting its performance. In the fiscal fourth quarter, the company witnessed higher manufacturing costs and increased transportation and warehouse expenses, largely due to inflation in key inputs like raw potatoes and labor. Anticipated cost pressures from a potential below-average potato crop in Europe and ongoing investment in new facilities and IT infrastructure are expected to keep the cost environment difficult despite efforts to mitigate these through pricing actions.
Road Ahead Looks Tough
Looking ahead to the fiscal 2025, management anticipates another challenging year. The operating landscape remains dynamic, marked by softened global restaurant traffic and reduced demand for frozen potatoes due to ongoing menu price inflation. LW expects this supply-demand imbalance to persist throughout the fiscal 2025. Moreover, input cost inflation poses further financial pressure.
In first-quarter fiscal 2025, management anticipates a decline in sales in the mid-to-high single digits, with volume expected to decline mid-single digits. Additionally, the margin pressure will be compounded by higher cost per pound, an unfavorable product mix and increased investments in pricing and trade support in the fiscal first quarter.
Better-Ranked Staple Bets
Vital Farms (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter earnings surprise of 82.5%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate Vital Farms’ current financial-year earnings indicate growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) Inc., a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings indicates growth of 4.3% and 11.5%, respectively, from the prior-year reported level.