Lamb Weston Holdings pleased with the start of FY 2018

Earlier this week Lamb Weston Holdings, Inc. (NYSE: LW) announced its first quarter 2018 results.

Tom Werner, President and CEO:
 

“Our strong start to the year reflects a good balance of sales growth, supply chain productivity and cost discipline.”

“Through our commitment to serving our customers and our focus on execution across the company, we continued to drive volume gains, improve price/mix and expand product contribution margins.”

“We expect the operating environment to remain generally favorable during fiscal 2018, with solid demand for frozen potato products globally and tight manufacturing capacity.”

“In the coming months, we expect to start up our new production line in Richland, Washington, which will enable us to continue to support our customers’ growth.”

“As a result, we remain on track to deliver on our full-year targets and are encouraged by our steady progress as an independent company.”

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Lamb Weston Holdings Inc Summary of First Quarter FY 2018 Results

Q1 2018 Commentary

Net sales were $817.5 million, up 5 percent versus the year-ago period. Price/mix increased 3 percent due to pricing actions and favorable product and customer mix. Volume increased 2 percent, with growth across all business segments.

Income from operations rose 10 percent to $137.6 million from the prior year period and included $2.2 million of costs related to the spinoff from Conagra Brands, Inc. (formerly ConAgra Foods, Inc., “Conagra”). A portion of the increase reflects the impact of $9.7 million of expenses incurred in the prior year period related to the spinoff from Conagra. Excluding these comparability items, income from operations grew $5.1 million, driven by favorable price/mix and higher volume, partially offset by cost inflation, as well as higher selling, general and administrative expense associated with incremental costs for being a stand-alone public company. Adjusted EBITDA including unconsolidated joint ventures(1) was $191.4 million, up 11 percent versus the prior year, reflecting higher equity method investment earnings as well as growth in income from operations.

Diluted EPS increased to $0.56 from $0.54 in the prior year period. The increase was primarily driven by growth in income from operations, higher equity method investment earnings and lower income tax expense. The increase was partially offset by higher interest costs related to debt incurred in connection with the spinoff. Adjusted Diluted EPS(1) was $0.57, down from $0.58 in the prior year period. The modest decline was primarily driven by higher interest costs and selling, general and administrative expenses, which were largely offset by higher gross profit, higher equity method investment earnings and lower income tax expense.

The effective tax rate(2) was 33 percent in the first quarter of fiscal 2018, versus 38 percent in the prior year period.

Q1 2018 Segment Highlights

Net sales for the Global segment, which is comprised of the top 100 North American based restaurant chain customers as well as the Company’s international business, increased 4 percent to $413.9 million. Price/mix increased 3 percent, largely reflecting price increases and improvement in customer and product mix. Volume increased 1 percent, driven by domestic market growth.

Global Segment Product Contribution Margin(1) increased 1 percent to $74.7 million, with favorable price/mix and volume gains largely offset by commodity, manufacturing, transportation and warehousing cost inflation.

Net sales for the Foodservice segment, which services North American foodservice distributors and restaurant chains outside the top 100 North American based restaurant chain customers, increased 7 percent to $279.4 million. Price/mix increased 6 percent, reflecting the carryover effect of pricing actions taken in fiscal year 2017, pricing actions implemented in the current quarter, and improvement in customer and product mix. Volume increased 1 percent, driven by broad-based growth across the segment’s customer base.

Foodservice Segment Product Contribution Margin(1) increased 14 percent to $90.9 million, primarily driven by favorable price/mix, partially offset by commodity, manufacturing, transportation and warehousing cost inflation.

Net sales for the Retail segment, which includes sales of branded and private label products to grocery, mass merchant and club customers in North America, increased 3 percent to $92.0 million. Volume increased 9 percent, primarily driven by the introduction of Grown in Idaho branded products as well as growth of private label products. Price/mix declined 6 percent, largely due to higher trade spending in support of Grown in Idaho.

Retail Segment Product Contribution Margin(1) declined 16 percent to $16.5 million, mainly due to higher trade spending as well as transportation and warehousing cost inflation.