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Why Is Lamb Weston (LW) Up 17.7% Since Last Earnings Report?
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A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have added about 17.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lamb Weston due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Lamb Weston Q4 Earnings & Sales Lag Estimates, Down Y/Y
Lamb Weston posted dismal results for the fourth quarter of fiscal 2024, with the top and the bottom line declining year over year. Quarterly net sales and earnings missed the Zacks Consensus Estimate.
Quarter in Detail
LW’s bottom line came in at 78 cents per share, which fell short of the Zacks Consensus Estimate of $1.24. Also, adjusted earnings dropped 40% year over year. The downside was caused by lower adjusted income from operations, higher effective tax rates and increased interest expenses.
Net sales amounted to $1,611.9 million, down 5% year over year. The metric missed the Zacks Consensus Estimate of $1,706.5 million. 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 was due to weak restaurant traffic trends in North America and other key international markets. At the same time, the rest stemmed from a voluntary product withdrawal. Our model suggested a volume decrease of 4.2% in the quarter. Price/mix improved by 3%, driven by the continued benefits of inflation-driven pricing adjustments implemented in late fiscal 2023 and additional pricing actions taken in fiscal 2024 across both business segments. We expected the price/mix to grow 5.4% in the quarter.
The adjusted gross profit declined by $72.2 million to $363 million. This downside was mainly due to an almost $40 million impact from a voluntary product withdrawal and reduced sales volumes. The company witnessed higher manufacturing costs per pound and increased transportation and warehouse expenses. The rise in manufacturing costs per pound was due to mid-single-digit inflation in key inputs such as raw potatoes, labor, and ingredients like grains and starches used in product coatings. However, this increase was partly mitigated by reduced expenses for edible oils and energy. Gains from inflation-driven pricing actions offered some respite.
Adjusted selling, general and administrative (SG&A) expenses fell $5.9 million to $172 million. Adjusted EBITDA declined by $50.3 million to $283.4 million. The decrease is mainly attributed to reduced net sales and adjusted gross profit, although lower adjusted SG&A expenses partially offset this.
Segment Analysis
Sales in the North America segment dropped 4% to $1,113.2 million. Volume decreased by 7%, primarily driven by a 5-percentage-point loss in market share and a 2-percentage-point impact from weak restaurant traffic trends in the U.S. Price/mix rose by 3%, benefiting from inflation-driven pricing adjustments initiated in late fiscal 2023. Additionally, pricing actions for contracts with large and regional chain restaurant customers in the fiscal 2024 contributed to the increase. Adjusted EBITDA in the segment came in at $276.5 million, down 7%.
In the International segment, sales fell 7% to $498.7 million. Volume fell 9%, with nearly 5 percentage points of the decline attributed to market share losses. This was influenced by the company's decision to exit certain lower-priced, lower-margin businesses in LW EMEA earlier in the year. Also, voluntary product withdrawal and subdued restaurant traffic trends in key international markets were downsides. Price/mix increased by 2% due to inflation-driven pricing adjustments implemented in fiscal 2024, along with the continued benefit from pricing actions taken in fiscal 2023. Adjusted EBITDA in the segment came in at $40.4 million, which slumped 52%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $71.4 million, long-term debt and financing obligations (excluding the current portion) of $3,440.7 million and total shareholders’ equity of $1,787.8 million. The company generated $798.2 million as net cash from operating activities for 52 weeks ended May 26, 2024, wherein capital expenditures amounted to $991.8 million. For fiscal 2025, the company expects cash to be used for capital expenditures to be $850 million. In fiscal 2024, management paid out dividends worth $174 million. The company repurchased $210 million worth of stocks in the year. The company has shares worth $390 million remaining under its current buyback plan.
Guidance
For the fiscal 2025, management anticipates net sales ranging from $6.6 billion to $6.8 billion, reflecting a projected growth of approximately 2-5% on a constant-currency basis. The uptick in net sales is expected to be primarily driven by increased volume, supported by targeted investments in pricing. In the first half of fiscal 2025, the company projects a potential low-to-mid single-digit decline in volume compared to the previous year period. This reflects the lingering impact of market share losses and soft restaurant traffic in the United States and key international markets. In the latter half of the fiscal 2025, Lamb Weston anticipates favorable volume growth as it moves beyond the impacts of the prior-year ERP transition and voluntary product withdrawal. Sales and volume benefits from recent customer contract wins are expected to strengthen further.
Lamb Weston expects adjusted SG&A expenses in the band of $740-$750 million. The company expects reported net income in the range of $630-$705 million. Diluted EPS are envisioned in the range of $4.35-$4.85 for the fiscal 2025. Adjusted EBITDA is anticipated to be in the range of $1,380-$1,480 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -50.81% due to these changes.
VGM Scores
At this time, Lamb Weston has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Lamb Weston is part of the Zacks Food - Miscellaneous industry. Over the past month, Conagra Brands (CAG - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended May 2024 more than a month ago.
Conagra Brands reported revenues of $2.91 billion in the last reported quarter, representing a year-over-year change of -2.3%. EPS of $0.61 for the same period compares with $0.62 a year ago.
Conagra Brands is expected to post earnings of $0.59 per share for the current quarter, representing a year-over-year change of -10.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Conagra Brands. Also, the stock has a VGM Score of A.
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Why Is Lamb Weston (LW) Up 17.7% Since Last Earnings Report?
A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have added about 17.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lamb Weston due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Lamb Weston Q4 Earnings & Sales Lag Estimates, Down Y/Y
Lamb Weston posted dismal results for the fourth quarter of fiscal 2024, with the top and the bottom line declining year over year. Quarterly net sales and earnings missed the Zacks Consensus Estimate.
Quarter in Detail
LW’s bottom line came in at 78 cents per share, which fell short of the Zacks Consensus Estimate of $1.24. Also, adjusted earnings dropped 40% year over year. The downside was caused by lower adjusted income from operations, higher effective tax rates and increased interest expenses.
Net sales amounted to $1,611.9 million, down 5% year over year. The metric missed the Zacks Consensus Estimate of $1,706.5 million. 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 was due to weak restaurant traffic trends in North America and other key international markets. At the same time, the rest stemmed from a voluntary product withdrawal. Our model suggested a volume decrease of 4.2% in the quarter. Price/mix improved by 3%, driven by the continued benefits of inflation-driven pricing adjustments implemented in late fiscal 2023 and additional pricing actions taken in fiscal 2024 across both business segments. We expected the price/mix to grow 5.4% in the quarter.
The adjusted gross profit declined by $72.2 million to $363 million. This downside was mainly due to an almost $40 million impact from a voluntary product withdrawal and reduced sales volumes. The company witnessed higher manufacturing costs per pound and increased transportation and warehouse expenses. The rise in manufacturing costs per pound was due to mid-single-digit inflation in key inputs such as raw potatoes, labor, and ingredients like grains and starches used in product coatings. However, this increase was partly mitigated by reduced expenses for edible oils and energy. Gains from inflation-driven pricing actions offered some respite.
Adjusted selling, general and administrative (SG&A) expenses fell $5.9 million to $172 million. Adjusted EBITDA declined by $50.3 million to $283.4 million. The decrease is mainly attributed to reduced net sales and adjusted gross profit, although lower adjusted SG&A expenses partially offset this.
Segment Analysis
Sales in the North America segment dropped 4% to $1,113.2 million. Volume decreased by 7%, primarily driven by a 5-percentage-point loss in market share and a 2-percentage-point impact from weak restaurant traffic trends in the U.S. Price/mix rose by 3%, benefiting from inflation-driven pricing adjustments initiated in late fiscal 2023. Additionally, pricing actions for contracts with large and regional chain restaurant customers in the fiscal 2024 contributed to the increase. Adjusted EBITDA in the segment came in at $276.5 million, down 7%.
In the International segment, sales fell 7% to $498.7 million. Volume fell 9%, with nearly 5 percentage points of the decline attributed to market share losses. This was influenced by the company's decision to exit certain lower-priced, lower-margin businesses in LW EMEA earlier in the year. Also, voluntary product withdrawal and subdued restaurant traffic trends in key international markets were downsides. Price/mix increased by 2% due to inflation-driven pricing adjustments implemented in fiscal 2024, along with the continued benefit from pricing actions taken in fiscal 2023. Adjusted EBITDA in the segment came in at $40.4 million, which slumped 52%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $71.4 million, long-term debt and financing obligations (excluding the current portion) of $3,440.7 million and total shareholders’ equity of $1,787.8 million. The company generated $798.2 million as net cash from operating activities for 52 weeks ended May 26, 2024, wherein capital expenditures amounted to $991.8 million. For fiscal 2025, the company expects cash to be used for capital expenditures to be $850 million. In fiscal 2024, management paid out dividends worth $174 million. The company repurchased $210 million worth of stocks in the year. The company has shares worth $390 million remaining under its current buyback plan.
Guidance
For the fiscal 2025, management anticipates net sales ranging from $6.6 billion to $6.8 billion, reflecting a projected growth of approximately 2-5% on a constant-currency basis. The uptick in net sales is expected to be primarily driven by increased volume, supported by targeted investments in pricing. In the first half of fiscal 2025, the company projects a potential low-to-mid single-digit decline in volume compared to the previous year period. This reflects the lingering impact of market share losses and soft restaurant traffic in the United States and key international markets. In the latter half of the fiscal 2025, Lamb Weston anticipates favorable volume growth as it moves beyond the impacts of the prior-year ERP transition and voluntary product withdrawal. Sales and volume benefits from recent customer contract wins are expected to strengthen further.
Lamb Weston expects adjusted SG&A expenses in the band of $740-$750 million. The company expects reported net income in the range of $630-$705 million. Diluted EPS are envisioned in the range of $4.35-$4.85 for the fiscal 2025. Adjusted EBITDA is anticipated to be in the range of $1,380-$1,480 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -50.81% due to these changes.
VGM Scores
At this time, Lamb Weston has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Lamb Weston is part of the Zacks Food - Miscellaneous industry. Over the past month, Conagra Brands (CAG - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended May 2024 more than a month ago.
Conagra Brands reported revenues of $2.91 billion in the last reported quarter, representing a year-over-year change of -2.3%. EPS of $0.61 for the same period compares with $0.62 a year ago.
Conagra Brands is expected to post earnings of $0.59 per share for the current quarter, representing a year-over-year change of -10.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Conagra Brands. Also, the stock has a VGM Score of A.