Lamb Weston Reports Fiscal Fourth Quarter 2020 Results; Provides Update for First Quarter of Fiscal Year 2021

Fourth Quarter 2020 Highlights (includes the contribution of an additional sales week versus the prior year)

• Net sales declined 16% to USD 847 million Income from operations declined 79% to USD 31 million, and includes USD 58 million of net costs related to the COVID-19 pandemic’s impact on operations
• Net income declined USD 112 million to a loss of USD 2 million Adjusted EBITDA including unconsolidated joint ventures(1) declined 64% to USD 78 million, and includes USD 74 million of net costs related to the pandemic’s impact on operations
• Diluted EPS declined USD 0.76 to a loss of USD 0.01 from USD 0.75
• Adjusted Diluted EPS (1) declined USD 0.75 to a loss of USD 0.01 from USD 0.74

Full Year 2020 Highlights (includes the contribution of a 53rd week)

• Net sales increased 1% to USD 3,792 million Income from operations declined 17% to USD 557 million, and includes USD 58 million of net costs related to the COVID-19 pandemic’s impact on operations
• Net income attributable to Lamb Weston declined 24% to USD 366 million Adjusted EBITDA including unconsolidated joint ventures(1) declined 12% to USD 800 million, and includes USD 74 million of net costs related to the pandemic’s impact on operations
• Diluted EPS declined 22% to USD 2.49 from USD 3.18
• Adjusted Diluted EPS(1) declined 22% to USD 2.50 from USD 3.22
• Cash flows from operations declined 16% to USD 574 million
• Returned USD 144 million of cash to stockholders in the form of both dividends and share repurchases

First Quarter of Fiscal Year 2021 Business Update (for 7 weeks ending July 20)

• North America shipments at approximately 85% of prior-year level, led by demand from quick serve restaurants and retail, while full-service restaurants have improved sequentially as states ease restrictions
• Europe shipments at approximately 75%of prior-year level, and have improved sequentially as countries ease restrictions
• China shipments at approximately 85% of prior-year level, while performance in other international markets has softened due to the effect of the continued spread of COVID-19 as well as inventory destocking

Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fiscal fourth quarter and full year 2020 results and provided a business update for the first quarter of fiscal 2021.

Tom Werner, President and CEO:

“The final months of fiscal 2020 were some of the most challenging in our Company’s history. Government efforts worldwide to slow the spread of COVID-19, including restrictions on restaurants and other foodservice operations, as well as shelter-in-place orders, abruptly reduced near-term demand for frozen potato products, which significantly impacted our sales and earnings in the fourth quarter .”

“During this time, we have prioritized the health and safety of our Lamb Weston team, and worked closely with our customers and suppliers as they manage through this uncertain environment. In addition, we took steps to strengthen our financial liquidity, and to position our manufacturing and commercial operations for success in fiscal 2021 and beyond. ”

“As states began to reopen, we saw clear evidence of frozen potato demand steadily strengthening across our restaurant and foodservice channels. ”

“ In the aggregate, french fry demand from most of our quick service restaurant customers in North America and our international markets, which together comprised a majority of our sales, rebounded substantially by the end of June. Although fry demand at full-service restaurants remains well below that of a year ago, it has also gradually improved as more states ease on-premises dining restrictions. ”

“ Fry demand by our 'non-commercial' customers – such as hotels, schools and universities, and sporting venues – remains very soft. Retail demand continues to be a bright spot for the category and for Lamb Weston. After rising sharply in the latter half of the fourth quarter as consumers stepped-up food-at-home purchases, category growth began to normalize in some markets, but in total continues to be above historical rates.”

“This steady improvement in category growth is encouraging, but there is still a great deal of uncertainty regarding its sustainability given the pace of economic recovery, consumer behavior, and governments either postponing lifting dining restrictions or reinstating restrictions on restaurants in response to rising COVID-19 infections in many states.”

“Accordingly, we are deferring providing a financial outlook until we gain more clarity on the demand environment going forward. Instead, we have provided some observations on what we have seen so far in our first quarter of fiscal 2021.”

“ Although we continue to face an unprecedented challenging environment in the near term, we remain confident in the long-term health and structure of the category, as well as our ability to execute on our strategies, support our customers, generate sustainable top- and bottom-line growth, and create value for our stakeholders.”

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Summary of Fourth Quarter and FY 2020 Results (USD in millions, except per share)

Q4 2020 Commentary

Net sales declined USD 156.5 million to USD 846.9 million, down 16 percent, or 22 percent excluding the benefit of the additional week of sales versus the prior year. Price/mix increased 1 percent due to improved price/mix in the Retail segment, partially offset by unfavorable mix in the Global and Foodservice segments. Volume declined 17 percent, or 23 percent excluding the benefit of the additional selling week, due to the sharp decline in demand for frozen potato products outside the home following government-imposed restrictions on restaurants and other foodservice operations to slow the spread of the COVID-19 virus, as well as customers destocking inventories as they adjusted to the abrupt change in the business environment. The decline was partially offset by increased in-home consumption of frozen potato products. In addition, the volume decline was partially offset by an approximately 1 percentage point benefit from acquisitions.

Income from operations declined USD 117.1 million, or 79 percent, to USD 30.9 million versus the year-ago period, reflecting lower sales and gross profit, partially offset by lower selling, general and administrative expense ('SG&A'). The decline includes approximately USD 58 million of costs, net of estimated employee retention credits provided by the Coronavirus Aid, Relief and Economic Security Act ('CARES Act') and other labor incentives, related to the pandemic’s impact on operations, as follows:

• Approximately USD 25 million of factory utilization-related production costs and inefficiencies, such as labor retention costs; costs to shut down, sanitize, and restart manufacturing facilities after a production employee was infected by the virus; costs arising from modifying production schedules and reducing run-times; and costs to shift certain manufacturing lines from producing foodservice-oriented products to retail-oriented products;
• Approximately USD 22 million of non-utilization-related costs (including USD 10 million of non-cash costs), primarily consisting of expensing crop year 2019 contracts for raw potatoes that could not be used due to the pandemic’s near-term effect on demand for frozen potato products, as well as incremental warehousing, transportation and supply chain costs due to lower product throughput; and
• Approximately USD 11 million of incremental SG&A and other expenses, largely comprised of costs to adopt and maintain enhanced employee safety and sanitation protocols, including purchases of safety and health screening equipment, costs to retain certain sales employees, net of CARES Act retention credits and other labor incentives, and expensing certain capitalized costs for manufacturing facility expansion projects that were stopped.

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Summary of COVID-19 Pandemic-Related Costs (USD in millions)

Gross profit declined USD 139.4 million, and included approximately USD 47 million of pandemic-related costs described above. Lower sales and higher manufacturing costs due to unfavorable mix, inefficiencies and input cost inflation drove the remainder of the decline.

SG&A expenses declined USD 22.3 million, largely driven by lower incentive compensation accruals, advertising and promotional expenses, and travel and meeting expenses, as well as suspending contributions to the Company’s charitable foundation. The decline was partially offset by approximately USD 11 million of pandemic-related expenses described above. During the quarter, the Company incurred approximately USD 3 million of non-recurring expenses, excluding expenses payable to us by Lamb-Weston/Meijer under the cost sharing agreement, that primarily relates to consulting expenses associated with developing and implementing a new enterprise resource planning ('ERP') system, and investments in our sales, marketing and operating capabilities.

Net income (loss) attributable to Lamb Weston declined USD 112.0 million to a loss of USD 1.6 million, primarily reflecting a decline in income from operations and equity method investment earnings.

Adjusted EBITDA including unconsolidated joint ventures(1) declined USD 137.1 million to USD 78.3 million, down 64 percent versus the prior year period, due to a decline in income from operations and equity method investment earnings. The decline includes approximately USD 74 million of net costs related to the pandemic’s impact, consisting of the USD 58 million of costs identified above and an additional USD 16 million of production, raw potato contract, supply chain costs and SG&A and other expenses at the Company’s unconsolidated joint ventures.

Diluted EPS decreased USD 0.76 to a loss of USD 0.01. The decrease primarily reflects a decline in income from operations and equity method investment earnings. Adjusted Diluted EPS(1), which excludes items impacting comparability, decreased USD 0.75 to a loss of USD 0.01.

The Company’s effective tax rate(2) in the fourth quarter of fiscal 2020 was 63.6 percent benefit, versus 18.9 percent expense in the prior year period, and is primarily due to lower earnings and discrete items originating during the fourth quarter of fiscal 2020.The prior year period includes a USD 1.4 million, or USD 0.01 per share, income tax benefit related to the true-up of the transition tax on previously untaxed foreign earnings under the U.S. Tax Cuts and Jobs Act (the 'Tax Act'). The effective tax rate varies from the U.S. statutory tax rate of 21 percent principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items.

Q4 2020 Segment Highlights

Global

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Global Segment Summary

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, decreased USD 97.2 million to USD 429.3 million, down 18 percent, or 24 percent excluding the benefit of the additional selling week, compared to the prior year period. Price/mix decreased 2 percent, largely due to unfavorable customer mix and lower sales of limited time offering products. Volume decreased 16 percent, or 22 percent excluding the benefit of the additional selling week, due to the sharp decline in demand for frozen potato products outside the home as a result of the pandemic’s impact on restaurant and other foodservice-related traffic. Acquisitions contributed approximately one-and-a-half percentage points of volume growth.

Global segment product contribution margin decreased USD 77.2 million to USD 33.5 million, down 70 percent compared to the prior year period. Pandemic-related costs accounted for approximately USD 29 million of the decline. Lower sales volumes and higher manufacturing costs due to unfavorable mix, inefficiencies and input cost inflation largely drove the rest of the decline.

Foodservice
 

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Foodservice Segment Summary

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, declined USD 137.3 million to USD 175.8 million, down 44 percent, or 47 percent excluding the benefit of the additional selling week, compared to the prior year period. Price/mix decreased 2 percent due to unfavorable mix as sales of Lamb Weston branded and premium products softened. Volume decreased 42 percent, or 45 percent excluding the benefit of the additional selling week, due to the sharp decline in demand for frozen potato products outside the home as a result of the pandemic’s impact on restaurant and other foodservice-related traffic.

Foodservice segment product contribution margin decreased USD 65.8 million to USD 42.5 million, down 61 percent compared to the prior year period. Pandemic-related costs accounted for approximately USD 8 million of the decline. Lower sales volumes and higher manufacturing costs due to unfavorable mix and inefficiencies largely drove the rest of the decline.

Retail

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Retail Segment Summary

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 USD 72.7 million to USD 201.9 million, up 56 percent, or 44 percent excluding the benefit of the additional selling week, compared to the prior year period. Volume increased 39 percent, or 27 percent excluding the benefit of the additional selling week, due to increased in-home consumption of frozen potato products following government-imposed stay-at-home orders. Demand was strong across the Company’s premium and mainstream branded offerings, as well as for its private label products. Price/mix increased 17 percent, largely driven by favorable mix from increased sales of branded products, as well as pricing actions.

Retail segment product contribution margin increased USD 10.4 million to USD 31.4 million, up 50 percent compared to the prior year period. Higher sales volumes, favorable mix and lower advertising and promotional expenses drove the increase, which was partially offset by approximately USD 10 million of pandemic-related costs.

Equity Method Investment Earnings

Equity method investment earnings (loss) from unconsolidated joint ventures in Europe, the U.S., and South America were a loss of USD 6.1 million and earnings of USD 15.2 million for the fourth quarter of fiscal 2020 and 2019, respectively. Equity method investment earnings also included a USD 2.7 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the current quarter and a USD 1.3 million loss related to these items in the prior year quarter.

Excluding the mark-to-market adjustments, earnings from equity method investments declined USD 25.3 million compared to the prior year period. Pandemic-related production, raw potato contract, supply chain and SG&A costs accounted for approximately USD 16 million of the decline (including USD 4 million, net of labor incentives, that was utilization-related and USD 12 million that was non-utilization-related), with the remainder largely driven by lower sales following government-imposed restrictions on restaurant and other foodservice operations.

Fiscal Year 2020 Commentary

Net sales were USD 3,792.4 million, up 1 percent compared to fiscal 2019. Excluding the benefit of the 53rd week, net sales declined 1 percent. Price/mix increased 1 percent due to pricing actions and favorable mix, largely due to pricing actions in the Company’s Foodservice and Retail segments. Volume was flat, or down 3 percent excluding the benefit of the 53rd week, as strong growth through the first three fiscal quarters was offset by the sharp decline in demand for frozen potato products outside the home during the fiscal fourth quarter following government-imposed restrictions on restaurants and other foodservice operations, as well as customers destocking inventories as they adjusted to the abrupt change in the business environment.

Income from operations declined USD 111.5 million, or 17 percent, to USD 556.9 million from the prior year primarily due to lower gross profit, and included approximately USD 58 million of costs related to the pandemic’s impact on operations in the fourth quarter, as described above. Gross profit declined USD 108.3 million, including approximately USD 47 million of pandemic-related costs. The remainder of the decline was driven by higher manufacturing costs due to input cost inflation, inefficiencies, higher depreciation expense primarily associated with the Company’s new french fry production line in Hermiston, Oregon, and unfavorable mix. In addition, gross profit included a USD 2.5 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current year, compared with a USD 10.8 million loss related to these items in the prior year.

SG&A expense increased USD 3.2 million compared to the prior year. The increase in SG&A was largely driven by approximately USD 11 million of pandemic-related expenses described above, higher expenses related to the Company’s information technology services and infrastructure (including approximately USD 8 million of non-recurring expenses, excluding expenses payable to Lamb Weston by Lamb-Weston/Meijer under the cost sharing agreement, that primarily relates to consulting expenses associated with developing and implementing a new ERP system), and investments in the Company’s sales, marketing and operating capabilities. The increase was partially offset by lower incentive compensation accruals, a USD 9.5 million reduction in advertising and promotional expenses, lower travel and meeting expenses, and suspending contributions to the Company’s charitable foundation.

Net income attributable to Lamb Weston decreased USD 112.7 million, or 24 percent, to USD 365.9 million, primarily reflecting a decline in income from operations and equity method investment earnings due to lower demand following government-imposed restrictions on restaurants and other foodservice operations during the Company’s fourth fiscal quarter. The results also included a USD 2.6 million (USD 2.0 million after-tax) loss related to the withdrawal from a multiemployer pension plan by the Company’s joint venture, Lamb-Weston/RDO Frozen ('Lamb Weston RDO'). The decline was partially offset by an USD 8.6 million incremental benefit from acquiring the remaining 50.01% equity interest in the Company’s joint venture (the 'BSW Acquisition'), Lamb Weston BSW, LLC ('Lamb Weston BSW').

Adjusted EBITDA including unconsolidated joint ventures(1) was USD 799.8 million, down 12 percent versus the prior year, reflecting a decline in income from operations and equity method investment earnings, partially offset by a USD 10 million incremental benefit from the BSW Acquisition. The decline includes approximately USD 74 million of net pandemic-related costs, including USD 58 million of costs described above and an additional USD 16 million of pandemic-related costs at the Company’s unconsolidated joint ventures.

Diluted EPS decreased USD 0.69, or 22 percent, to USD 2.49, largely reflecting a decline in income from operations and equity method earnings, partially offset by an approximate USD 0.07 benefit related to the BSW Acquisition, and a USD 0.06 charge related to the BSW Acquisition in the prior year period.

Adjusted Diluted EPS(1), which excludes items impacting comparability, decreased USD 0.72, or 22 percent, to USD 2.50, largely reflecting a decline in income from operations and equity method investment earnings, partially offset by an approximate USD 0.07 benefit from the BSW Acquisition.

The Company’s effective tax rate(2) was 23.5 percent for fiscal 2020, compared to 21.5 percent in fiscal 2019. Fiscal 2019 includes a USD 2.4 million decrease in income tax expense related to the true-up of the transition tax on previously untaxed foreign earnings under the Tax Act. Excluding this comparability item, the Company’s effective tax rate for fiscal 2019 was 21.9 percent. The difference between the Company’s effective tax rates in fiscal 2020 and 2019 is primarily due to permanent differences and discrete items. The effective tax rate varies from the U.S. statutory tax rate of 21 percent principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items.

Fiscal Year 2020 Segment Highlights

Global

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Global Segment Summary

Net sales for the Global segment increased USD 12.1 million to USD 1,973.6 million, up 1 percent, or down 1 percent excluding the benefit of the 53rd week, compared to fiscal 2019. Volume increased 1 percent, or down 1 percent excluding the benefit of the 53rd week, driven by growth in sales to strategic customers in the U.S. and key international markets during the first three quarters of the fiscal year. Volume growth was partially offset by the sharp decline in demand for frozen potato products outside the home during the fourth quarter, primarily attributable to government-imposed restrictions on restaurants and other foodservice operations, as well as customers destocking inventories as they adjusted to the abrupt change in the business environment. Price/mix was flat as positive pricing actions were offset by unfavorable customer mix.

Global segment product contribution margin decreased USD 71.8 million to USD 374.5 million, down 16 percent compared to fiscal 2019. Pandemic-related costs accounted for approximately USD 29 million of the decline. Higher manufacturing costs due to unfavorable mix, inefficiencies and input cost inflation, as well as higher depreciation expense primarily associated with the addition of the new production line in Hermiston, Oregon, largely drove the rest of the decline.

Foodservice

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Foodservice Segment Summary

Net sales for the Foodservice segment decreased USD 87.0 million to USD 1,069.1 million, down 8 percent, or 8 percent excluding the benefit of the 53rd week, compared to fiscal 2019. Price/mix increased 2 percent, primarily reflecting pricing actions initiated in the fall of 2019. Volume decreased 10 percent, or 10 percent excluding the benefit of the 53rd week. Volume growth of distributor private label and Lamb Weston branded products was solid during the first three quarters of the fiscal year, but fell as demand for frozen potato products outside the home, especially at full-service restaurants and non-commercial operations (e.g., hotels, schools and universities, sporting venues) dropped sharply during the fourth quarter following government-imposed restrictions on restaurants and other foodservice operations, as well as customers destocking inventories as they adjusted to the abrupt change in the business environment.

Foodservice segment product contribution margin decreased USD 46.4 million to USD 356.0 million, down 12 percent compared to fiscal 2019. Pandemic-related costs accounted for approximately USD 8 million of the decline. Higher manufacturing costs due to inefficiencies and input cost inflation, as well as higher depreciation expense primarily associated with the addition of the new production line in Hermiston, Oregon, largely drove the rest of the decline.

Retail

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Retail Segment Summary

Net sales for the Retail segment increased USD 97.2 million to USD 595.5 million, up 20 percent, or 16 percent excluding the benefit of the 53rd week, compared to fiscal 2019. Volume increased 13 percent, or 10 percent excluding the benefit of the 53rd week, due to increased in-home consumption of frozen potato products following government-imposed stay-at-home orders during the fiscal fourth quarter. Demand was strong across the Company’s premium and mainstream branded offerings, as well as for its private label products. Price/mix increased 7 percent, largely driven by favorable mix from increased sales of branded products, and pricing actions.

Retail segment product contribution margin increased USD 18.8 million to USD 117.6 million, up 19 percent compared to fiscal 2019. Higher sales volumes, favorable product mix and an USD 8.3 million decline in advertising and promotional expenses drove the increase. The increase was partially offset by approximately USD 10 million of pandemic-related costs.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures in Europe, the U.S., and South America were USD 29.3 million and USD 59.5 million for fiscal 2020 and 2019, respectively. Earnings in fiscal 2020 included a USD 2.6 million loss related to the withdrawal from a multiemployer pension plan by Lamb Weston RDO. Equity method investment earnings also included a USD 6.3 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2020 and a USD 2.6 million loss related to these items in fiscal 2019.

Excluding the Lamb Weston RDO pension-related comparability item and the mark-to-market adjustments, earnings from equity method investments declined USD 23.9 million compared to the prior year period. Pandemic-related costs, net of labor incentives, accounted for approximately USD 16 million of the decline, with the remainder largely driven by lower sales following government-imposed restrictions on restaurant and other foodservice operations.

Cash Flow and Liquidity

Net cash from operating activities declined USD 106.9 million to USD 574.0 million, primarily due to lower sales and income from operations. Capital expenditures, including information technology expenditures, were USD 208.4 million in fiscal year 2020, down USD 128.5 million versus the prior year due to investments for the construction of a production line in Hermiston, Oregon, which was completed in the fourth quarter of fiscal 2019, as well as the Company’s decision in the fourth quarter of fiscal 2020 to defer certain near-term capital expenditures in order to preserve financial flexibility. During the fourth quarter, the Company also took steps to enhance its liquidity position, including: borrowing USD 495.0 million under its revolving credit facility to increase its cash position and preserve financial flexibility; entering into a USD 325.0 million term loan; and completing a USD 500.0 million offering of senior notes maturing in 2028. At May 31, 2020, the Company had USD 1,364.0 million of cash and cash equivalents. In June and July 2020, the Company repaid USD 100.0 million and USD 395.0 million, respectively, under its revolving credit facility.

Capital Returned to Shareholders

In fiscal year 2020, the Company returned a total of USD 144.2 million to shareholders, including USD 121.3 million in cash dividends and USD 22.9 million through share repurchases. The average price per share repurchased was USD 79.56. The Company has approximately USD 195 million remaining under its current USD 250 million share repurchase authorization. Given the uncertainty of the pandemic’s near-term impact, the Company suspended share repurchases to provide additional liquidity until there is more clarity about the future operating environment.

First Quarter of Fiscal 2021 Update

Due to the unpredictable effect of the COVID-19 pandemic on the global economy, and more specifically, on consumer demand and restaurant traffic in North America and key international markets, including markets served by the Company’s joint ventures, the Company does not believe it can reasonably forecast frozen potato product demand for fiscal 2021.

Set forth below is additional detail on the Company’s shipment trends for the first seven weeks of the first quarter of fiscal 2021 through the week ending July 20:
 

• United States: Shipments-to-date are approximately 85 percent of prior-year levels. Shipments to large chain restaurant customers, which are primarily composed of quick service restaurants ('QSR') that have relied on drive-thru traffic to support sales, have recovered to 85 to 90 percent of prior-year levels during the most recent weeks of the quarter. Shipments to customers served by the Company’s Foodservice segment, which includes products ultimately sold to full-service chain and independent restaurants, regional and small QSRs, and 'non-commercial' customers – such as hotels, schools and universities, and sporting venues – have gradually improved during the quarter, and have recovered to 70 to 75 percent of prior-year levels during the most recent weeks as states began to ease on-premises dining restrictions. Shipments to retail customers during the most recent weeks are trending up 5 to 10 percent compared with the prior year period, as consumer trends to increase food-at-home purchases begin to normalize.
  
  While the Company has realized improvements in shipments in each of its primary sales channels quarter-to-date, the Company believes these improvements may become less pronounced, cease or reverse as the spread of COVID-19 continues and states reinstate or otherwise postpone on-premises dining restrictions.
• Europe: Shipments-to-date by the Company’s joint venture, Lamb-Weston/Meijer v.o.f. ('LWM'), are approximately 75 percent of prior-year levels, and have gradually improved as the quarter progressed as countries began to ease on-premises dining restrictions. Shipments early in the quarter were approximately 65 percent of prior-year levels, and have recovered to approximately 80 percent of prior-year levels during the most recent weeks. A high percentage of LWM’s sales in Europe are to QSRs, which unlike U.S. QSRs, rely on dine-in, carry-out or delivery traffic as drive-thru options are limited.
• China: Shipments-to-date are approximately 85 percent of prior-year levels, and have improved from nearly 80 percent of prior-year levels at the end of May to more than 95 percent of prior-year levels in the most recent weeks as the country continues to ease on-premises dining restrictions and as consumers increasingly become more comfortable with dining on-premises.
• Other International Markets: Shipments-to-date have been soft compared with the prior year, reflecting the effect of the continued spread of COVID-19 and inventory destocking in several key markets.

The Company has also taken actions, and will continue to evaluate various options, to lower its cost structure and maximize the efficiency of its manufacturing and commercial operations. As the Company disclosed in a Form 8-K on May 7, 2020, the Company reduced contracting of raw potatoes by approximately 20-25 percent for the 2020 crop year, compared with its 2019 crop year purchases. The Company believes that there will likely be adequate non-contracted processing potatoes available for purchase in the event that frozen potato demand exceeds the Company’s initial forecast. The Company will continue to evaluate various options to adjust its operations, including temporarily closing facilities and/or modifying production schedules to rebalance utilization rates across its manufacturing network.

The Company expects that it will continue to incur costs as a result of the COVID-19 pandemic’s impact on its manufacturing, supply chain, commercial and functional support operations. For example, these may include: costs to shut down, sanitize, and restart production facilities after a production employee has been infected by the virus; production inefficiencies and labor retention costs arising from modifying production schedules, reducing run-times, and lower overall factory utilization; costs to adopt and maintain enhanced employee safety and sanitation protocols, such as purchasing personal protection and health screening equipment and services; incremental warehousing and transportation costs; and costs to retain sales and functional support employees.

In addition, for all of fiscal 2021, the Company expects:

• Interest expense, net, of approximately USD 125 million, which is an increase of USD 10-USD 15 million versus the prior year, reflecting the Company’s increase in total debt in order to enhance its liquidity position.
• Cash used for capital expenditures, excluding acquisitions, of approximately USD 140 million.
• Depreciation and amortization of approximately USD 190 million.

End Notes

(1) Adjusted EBITDA including unconsolidated joint ventures and Adjusted Diluted EPS are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures and the reconciliations at the end of this press release for more information.

(2) The effective tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

(3) For more information about product contribution margin, please see the table titled 'Segment Information' in this press release.

Webcast and Conference Call Information

Lamb Weston will host a conference call to review its fourth quarter 2020 results at 10:00 a.m. ET today. Participants in the U.S. and Canada may access the conference call by dialing 800-437-2398 and participants outside the U.S. and Canada should dial +1-323-289-6576. The confirmation code is 9607699. The conference call also may be accessed live on the internet. Participants can register for the event here.

A rebroadcast of the conference call will be available on Wednesday, July 29, 2020 after 2 p.m. EDT