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The stock price of Lamb Weston Holdings, Inc. on the NYQ stock exchange Shares have gained 19% annually and 60% over the past year. Last week, the company reported strong results for the third quarter of 2023 and raised its guidance for the full year. Here’s a look at the tailwinds and headwinds ahead of these frozen potatoes and fries:
Tailwinds
Lamb Weston reported strong sales growth in the third quarter of 2023. Net sales rose 31% year over year to $1.25 billion, helped by price increases implemented to combat cost inflation. The company also recorded double-digit sales growth across all segments, driven by price increases.
Lamb Weston saw profit growth and margin expansion during the quarter. In Q3, GAAP net income increased 64% to $175 million, or $1.21 per share. On an adjusted basis, EPS more than doubled to $1.43. Gross profit increased 80% to approximately $398 million while gross profit increased 860 basis points to 31.7% compared to the prior-year quarter.
The company witnessed healthy growth in the French fries category despite a challenging environment. The producer of potato products experienced an increase in total restaurant traffic during the third quarter compared to the previous year, driven almost entirely by quick service restaurants (QSR), with particular strength in burger and chicken restaurant chains, which were the main contributors to driving demand. for frying.
In its quarterly conference call, Lamb Weston said fry attachment rates remain solid. Fries attachment rate is the rate at which consumers order fries when visiting a food service store. The company is also seeing demand for fries in the home food channel. In Q3, shipments in the Retail segment grew, driven by gains in products sold under licensed restaurant brands. They expect strong demand in this channel to continue through fiscal year 2024.
The addition of Lamb Weston Europe, Middle East and Africa, or Lamb Weston EMEA, is another tailwind for the company. This acquisition adds six factories and around GBP2 billion of production capacity to the company’s global manufacturing footprint, which will increase its ability to serve customers in key markets around the world.
Lamb Weston raised its guidance for the full year of 2023. The company now expects net sales of between $5.25-5.35 billion versus the previous range of $4.8-4.9 billion. About $300-325 million of this increase reflects the consolidation of LW EMEA, while the increase of $100-150 million still reflects strong performance in Q3 and expected momentum in Q4. Adjusted EPS is now expected to be $4.35-4.50 versus the previous range of $3.75-4.00.
Headwind
In the third quarter, Lamb Weston’s overall volume remained flat as growth in shipments to restaurant chains and retail channel customers in North America offset the impact of exiting the low-cost and low-cost businesses. A decline in traffic at casual dining and full-service restaurants in North America also weighed on volumes. Volume remained flat in the Global segment while in Foodservice, it fell 3% due to a slowdown in casual and full-service restaurant traffic.
The company expects to see a volatile macro environment in North America and Europe in the near term due to higher input costs and inflationary pressures on consumer demand and restaurant traffic.
On the call, Lamb Weston said it expects changes in its product mix and consumer demand to pressure production in the near term as well as deliver on-demand products like retail and premium fries and batter-coated products. He expects volume pressure and the ability to meet ever-increasing consumer demand until capacity investments in Idaho, China, Argentina and the Netherlands become available over the next few years.
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