A month has gone by since the last earnings report for Lamb Weston (LW Quick QuoteLW - Free Report) . Shares have added about 16% 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 its most recent earnings report in order to get a better handle on the important catalysts.

LW Q1 Earnings Meet Estimates, Profit View Cut Amid Demand Slowdown

Lamb Weston posted results for the first quarter of fiscal 2025, with the top and the bottom line declining year over year. Quarterly net sales surpassed the Zacks Consensus Estimate while earnings met the same. Management reaffirmed its fiscal 2025 net sales outlook but revised adjusted EPS guidance downward.

LW’s bottom line came in at 73 cents, which was in line with the Zacks Consensus Estimate. However, the metric dropped 55% year over year. The downside was due to lower adjusted income from operations, caused by several factors, including a higher effective tax rate, along with increased interest expenses. 

Net sales amounted to $1,654.1 million, surpassing the Zacks Consensus Estimate of $1,555.2 million. The top line fell 1% year over year.  The company noted that restaurant traffic and frozen potato demand remain soft compared with supply and this trend is expected to continue throughout fiscal 2025. Nevertheless, from improved volume performance, solid price/mix and effective cost management offered respite. Lamb Weston’s volume fell 3% caused by customer share losses, weak restaurant traffic and the company's strategic decision last year to exit lower-priced and lower-margin businesses in Europe. In addition, a voluntary product withdrawal in late fiscal 2024 impacted results, though growth in key international markets helped offset the volume decline. Price/mix increased 2%, thanks to inflation-driven price hikes in Europe and North America, though unfavorable channel and product mix, along with targeted investments in pricing and trade support, partially offset these gains. 

The adjusted gross profit dropped $137.2 million to $353.1 million due to increased manufacturing costs per pound, a $39 million loss from a voluntary product withdrawal, lower sales volumes and higher warehouse expenses. This decline was partially offset by gains from pricing actions. The rise in manufacturing costs was caused by input cost inflation like higher raw potato costs, production inefficiencies and $15.5 million in increased depreciation expenses linked to the company’s recent capacity expansions in China and the United States. Adjusted selling, general and administrative (SG&A) rose $5.5 million to $165.9 million, on the back of higher non-cash amortization and expenses related to its new enterprise resource planning system. Cost savings initiatives offset the impact of inflation and investments in information technology. Adjusted EBITDA fell $122.9 million to $289.9 million, primarily due to lower sales and a decline in adjusted gross profit.

LW Provides First-Quarter Insights by Segment

Net sales for the North America segment dropped 3% to $1,103.7 million, with a 4% decline in volume due to customer share losses and reduced U.S. restaurant traffic. Price/mix increased 1%, benefiting from inflation-driven pricing actions for large and regional chain restaurant contracts in fiscal 2024. However, this was partially offset by unfavorable channel and product mix, along with targeted investments in pricing and trade support aimed at attracting and retaining volume across all sales channels. North America Segment Adjusted EBITDA fell $103.3 million to $276.1 million, primarily due to higher manufacturing costs per pound, a charge for the voluntary product withdrawal and lower sales volumes, partially offset by gains from pricing actions.

Net sales for the International segment rose 4% to $550.4 million, despite a 1% decline in volume. The volume decrease was caused by the company's prior decision to exit lower-priced and lower-margin business in Europe to optimize customer and product mix, along with the impact of a voluntary product withdrawal. However, growth in key international markets outside Europe helped offset the decline. Price/mix increased 5% due to pricing actions taken this fiscal year to combat input cost inflation. International Segment Adjusted EBITDA dropped $39.1 million to $50.5 million, primarily due to the voluntary product withdrawal and higher manufacturing costs per pound, though this was partially offset by inflation-driven pricing benefits.

Lamb Weston’s Financial Health Snapshot

The company ended the quarter with cash and cash equivalents of $120.8 million, long-term debt and financing obligations (excluding the current portion) of $3,437.3 million and total shareholders’ equity of $1,836.7 million. The company generated $330.2 million as net cash from operating activities for 13 weeks ended Aug. 25, 2024, wherein capital expenditures amounted to $335.6 million.  Management paid out dividends worth $52 million and repurchased $82 million worth of stocks in the quarter. The company has shares worth $308 million remaining under its current buyback plan.

What to Expect From LW in FY25?

The company reaffirmed its fiscal 2025 net sales target of $6.6 billion to $6.8 billion, representing growth of approximately 2% to 5% on a constant currency basis, with volume increases expected to be the primary driver of sales growth. The company anticipates achieving the low end of its adjusted EBITDA target range of $1,380 million to $1,480 million. Higher manufacturing costs per pound, net of restructuring savings, less favorable product mix and slightly higher-than-expected investments in pricing and trade are expected to offset reductions in adjusted SG&A expenses. The company lowered its adjusted SG&A target range to $680-$690 million, down from $740 million to $750 million, caused by cost savings from the Restructuring Plan, including headcount reductions across commercial and support functions, the elimination of certain unfilled positions and additional savings initiatives not linked to the restructuring efforts. The company lowered its adjusted net income target range to $600-$615 million and adjusted EPS to $4.15-$4.35, reflecting reduced adjusted EBITDA guidance range. The adjustment also accounts for increased estimates for interest expenses and the effective tax rate for the full year. Previously, the company projected adjusted net income of $630 million to $705 million and adjusted EPS of $4.35 to $4.85 for fiscal 2025. The company anticipates an interest expense of around $185 million, depreciation and amortization expenses of approximately $375 million and an effective tax rate of about 25%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -10.85% due to these changes.

VGM Scores

Currently, 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 A on the value side, putting it in the top quintile 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. Notably, Lamb Weston has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.