Potato Processor Lamb Weston publishes a quarterly report for the very first time

Lamb Weston Holdings, Inc. (NYSE:LW) has just published its second quarter 2017 results.

Tom Werner, President and CEO of Lamb Weston:

“We’re very excited to begin our journey as an independent company and are pleased with our better-than-expected second quarter and year-to-date results.”

“Our focus on execution in this favorable environment is evident in our strong first half performance, and we’ve raised our sales and earnings outlook accordingly.”

“Demand for frozen potato products continues to grow around the world.”

“We’re managing through a tight capacity environment and driving supply chain efficiencies to meet current demand until our capacity expansion comes online in the second half of calendar 2017.”

“We believe that we’re well positioned to capture growth over the long term through our strong relationships with customers, our innovation and our global footprint.”

Q2 2017 Commentary

Net sales were $791 million, up 7 percent versus the year-ago period. Volume increased 4 percentage points as productivity programs and strong manufacturing plant performance stretched available capacity, allowing the Company to meet demand growth in both North America and international markets. Price/mix increased 3 percentage points due to pricing actions and favorable product and customer mix.

Income from operations increased 15 percent to $126 million from $110 million in the prior year period, and included $9 million of costs related to the spinoff from Conagra Brands, Inc. (formerly ConAgra Foods, Inc., “Conagra”). The increase was largely due to favorable price/mix and volume, as well as supply chain efficiencies. Raw potato costs were essentially flat versus the prior year period. Selling, general and administrative expense increased, largely due to incremental costs associated with being a stand-alone business as well as higher incentive compensation costs.

Adjusted EBITDA including unconsolidated joint ventures was $168 million, an increase of 19 percent versus the prior year period, mainly reflecting growth in income from operations, partially offset by lower equity method investment earnings.

Diluted EPS increased 18 percent to $0.59 from $0.50 in the prior year period, and Adjusted Diluted EPS was $0.63, up 26 percent. The increases were largely due to higher income from operations, partially offset by higher interest costs and lower equity method investment earnings. The effective tax rate(2) was 27 percent in second quarter of fiscal 2017. The lower rate is primarily attributable to an increase in costs determined to be deductible, as well as a discrete benefit from fiscal 2016 foreign taxes.

Q2 2017 Segment Highlights

Net sales for the Global segment increased 6 percent to $413 million. Volume added 5 percentage points, driven by growth in both domestic and international markets. Price/mix contributed 1 percentage point, largely reflecting price increases for international markets and selected domestic customers, as well as actions to improve customer and product mix.

Global Segment Product Contribution Margin increased 17 percent to $92 million, driven by favorable price/mix, volume growth and supply chain efficiency savings.

Net sales for the Foodservice segment increased 11 percent to $251 million. Price/mix added 6 percentage points, reflecting pricing actions and improvement in customer and product mix. Volume increased 5 percentage points, largely behind growth of small and mid-sized restaurant chain operators as well as regional and independent food distributors.

Foodservice Segment Product Contribution Margin increased 39 percent to $80 million, driven by favorable price/mix, supply chain efficiency savings and volume growth.

Net sales for the Retail segment increased 5 percent to $97 million. Volume increased 4 percentage points, largely driven by growth of licensed brands and private label. Price/mix increased 1 percentage point, reflecting higher prices and favorable customer and product mix.

Retail Segment Product Contribution Margin increased 36 percent to $21 million, driven by favorable price/mix, the timing of advertising spending, supply chain efficiency savings and volume growth.