Potato Processor Lamb Weston Reports Financial Results, Outlook and Announces Restructuring Plan

Lamb Weston Holdings, Inc. (NYSE: LW) has announced its results for the first quarter of fiscal 2025 and updated its full-year earnings targets for fiscal 2025.

Tom Werner, President and CEO:

"We delivered first quarter financial results that were generally in line with our expectations, driven by sequentially improved volume performance, solid price/mix, and strict management of operating costs."

"However, restaurant traffic and frozen potato demand, relative to supply, continue to be soft, and we believe it will remain soft through the remainder of fiscal 2025."

"To drive operational and cost efficiencies, we are taking actions that include the permanent closure of an older, higher-cost processing facility and the temporary curtailment of certain production lines and schedules in our manufacturing network."

"Together, we expect these actions will help us better manage our factory utilization rates and ease some of the current supply-demand imbalance in North America. We are also taking actions to reduce operating expenses, including reducing headcount and eliminating certain unfilled job positions, as well as reducing capital expenditures. The combined estimated savings from these actions are reflected in our updated fiscal 2025 targets."

"These actions are proactive steps designed to improve our operating efficiency, profitability and cash flows, while also positioning us to continue to make strategic investments to support our customers and create value for our stakeholders over the long-term."

Q1 2025 Commentary 

Net sales declined USD 11.2 million to USD 1,654.1 million, down 1 percent versus the prior year quarter. Volume declined 3 percent, largely reflecting the impact of customer share losses, soft restaurant traffic trends, the carryover effect of the Company's decision in the prior year to exit certain lower-priced and lower-margin business in Europe to strategically manage customer and product mix, and the impact of a previously announced voluntary product withdrawal initiated in late fiscal 2024. 

The volume decline was partially offset by growth in key international markets. Price/mix increased 2 percent, reflecting the benefit of inflation-driven pricing actions in Europe and North America, and was partially offset by unfavorable channel and product mix, as well as targeted investments in price and trade support. 

Gross profit declined USD 143.5 million versus the prior year quarter to USD 356.0 million, and also included a USD 2.9 million (USD 2.2 million after-tax, or USD 0.01 per share) unrealized gain related to mark-to-market adjustments associated with commodity hedging contracts. 

The prior year quarter included a USD 31.7 million (USD 23.8 million after-tax, or USD 0.16 per share impact) unrealized gain related to mark-to-market adjustments associated with commodity hedging contracts, and USD 22.5 million of costs (USD 16.7 million after-tax, or USD 0.11 per share) associated with the sale of inventory stepped-up to fair value following the Company’s acquisition of the remaining interest in Lamb-Weston/Meijer v.o.f. ("LW EMEA"), its former European joint venture (the "LW EMEA Acquisition"). 

Adjusted Gross Profit(1) declined USD 137.2 million versus the prior year quarter to USD 353.1 million. Higher manufacturing costs per pound, an approximately USD 39 million loss from the voluntary product withdrawal, lower sales volumes, and higher warehouse costs drove the decline and were partially offset by a net benefit from pricing actions. 

The higher manufacturing costs per pound largely reflected input cost inflation, which was primarily driven by higher raw potato costs; utilization-related production costs and inefficiencies; and USD 15.5 million of higher depreciation expense primarily associated with the Company’s recent capacity expansions in China and the U.S. The Company does not expect further significant sales or earnings impact from the voluntary product withdrawal during the remainder of fiscal 2025. 

Selling, general and administrative expenses (SG&A) declined USD 32.3 million versus the prior year quarter to USD 143.9 million and included a gain of USD 16.6 million (before and after-tax, or USD 0.12 per share) related to blue chip swap transactions(2) in Argentina, USD 0.6 million (USD 0.5 million after-tax, or USD 0.01 per share) of foreign currency exchange losses, and USD 6.0 million (USD 4.4 million after-tax, or USD 0.03 per share) of unrealized gains related to mark-to-market adjustments associated with currency hedging contracts. 

The prior year quarter included USD 7.4 million (USD 5.5 million after-tax, or USD 0.04 per share) of foreign currency exchange losses, USD 4.4 million (USD 3.3 million after-tax, or USD 0.02 per share) of unrealized losses related to mark-to-market adjustments associated with currency hedging contracts, and USD 4.0 million (USD 3.0 million after-tax, or USD 0.02 per share) of LW EMEA integration and acquisition-related expenses. 

Adjusted SG&A(1) increased USD 5.5 million versus the prior year quarter to USD 165.9 million, primarily due to USD 6.1 million of incremental non-cash amortization and expense related to the Company's new enterprise resource planning (ERP) system. The benefit of cost savings initiatives essentially offset inflation and information technology investments. 

Income from operations declined USD 111.2 million versus the prior year quarter to USD 212.1 million. Adjusted Income from Operations(1) declined USD 142.7 million versus the prior year quarter to USD 187.2 million, driven by lower sales and Adjusted Gross Profit(1), partially offset by lower Adjusted SG&A(1). 

Net income declined USD 107.4 million versus the prior year quarter to USD 127.4 million, and Diluted EPS declined USD 0.72 versus the prior year quarter to USD 0.88. Net income in the current quarter included a total net gain of USD 22.7 million (USD 24.9 million before tax, or USD 0.15 per share) for gains resulting from blue chip swap transactions(2) in Argentina, foreign currency exchange losses, and unrealized mark-to-market derivative gains and losses. 

Net income in the prior year quarter included a total net loss of USD 4.7 million (USD 6.6 million before tax, or USD 0.03 per share) for foreign currency exchange losses and unrealized mark-to-market derivative gains and losses, and items impacting comparability. 

Adjusted Net Income(1) declined USD 134.8 million versus the prior year quarter to USD 104.7 million, and Adjusted Diluted EPS(1) declined USD 0.90 from the prior year quarter to USD 0.73. The declines in Adjusted Net Income(1) and Adjusted Diluted EPS(1) largely reflect lower Adjusted Income from Operations(1) due to the factors described above; a higher effective tax rate, reflecting discrete tax items in the current and prior year quarters; and increased interest expense primarily due to higher total debt and higher interest rates on floating rate debt. 

Adjusted EBITDA(1) declined USD 122.9 million versus the prior year quarter to USD 289.9 million, primarily due to lower sales and Adjusted Gross Profit(1), which includes an approximately USD 39 million loss associated with the voluntary product withdrawal. 

The Company’s effective tax rate(3) in the first quarter was 28.5 percent, versus 22.9 percent in the prior year quarter. Excluding a USD 2.2 million net tax benefit and USD 1.9 million of net tax loss from items impacting comparability in the current quarter and prior year quarter, respectively, the Company’s effective tax rate in the first quarter was 31.7 percent, versus 23.1 percent in the prior year quarter, largely due to a higher proportion of earnings from the Company’s International segment in the current quarter, and discrete tax items.

Q1 2025 Segment Highlights 

North America Summary

Net sales for the North America segment, which includes all sales to customers in the U.S., Canada and Mexico, declined USD 31.7 million to USD 1,103.7 million, down 3 percent versus the prior year quarter. Volume declined 4 percent, largely reflecting the impact of customer share losses and declining restaurant traffic in the U.S. 

Price/mix increased 1 percent, reflecting the carryover benefit of inflation-driven pricing actions taken in fiscal 2024 for contracts with large and regional chain restaurant customers, partially offset by unfavorable channel and product mix, as well as targeted investments in price and trade support across all sales channels to attract and retain volume. 

North America Segment Adjusted EBITDA declined USD 103.3 million to USD 276.1 million. Higher manufacturing costs per pound, an approximately USD 21 million charge for the voluntary product withdrawal related to products manufactured in North America, and lower sales volumes drove the decline, which was partially offset by a net benefit from pricing actions. 

International Summary 

Net sales for the International segment, which includes all sales to customers outside of North America, increased USD 20.5 million to USD 550.4 million, up 4 percent versus the prior year quarter. Volume declined 1 percent due to the carryover effect of the Company's decision in the prior year to exit certain lower-priced and lower-margin business in Europe to manage customer and product mix strategically, as well as the impact of the voluntary product withdrawal. 

The volume decline was partially offset by growth in key international markets outside of Europe. Price/mix increased 5 percent, reflecting pricing actions announced this fiscal year to counter input cost inflation. 

International Segment Adjusted EBITDA declined USD 39.1 million to USD 50.5 million. An approximately USD 18 million impact associated with the voluntary product withdrawal and higher manufacturing costs per pound largely drove the decline, which was partially offset by the benefit of inflation-driven pricing actions. 

Equity Method Investment Earnings 

Equity method investment earnings from unconsolidated joint ventures were USD 11.3 million and USD 12.1 million for the first quarter of fiscal 2025 and 2024, respectively. The results in the current and prior year quarters reflect earnings associated with the Company’s 50 percent interest in Lamb Weston/RDO Frozen, an unconsolidated joint venture in Minnesota. 

Liquidity and Cash Flows

Net cash provided by operating activities for the first quarter of fiscal 2025 was USD 330.2 million, down USD 4.4 million versus the prior year period, due to lower earnings. 

Capital expenditures, net of proceeds from blue chip swap transactions, during the first quarter of fiscal 2025 were USD 335.6 million, up USD 30.9 million versus the prior year period, primarily reflecting higher investments to support strategic capacity expansion projects in the U.S., the Netherlands, and Argentina. 

As of August 25, 2024, the Company had USD 120.8 million of cash and cash equivalents, with USD 1,004.0 million of available liquidity under its global revolving credit facility. 

On September 27, 2024, the Company entered into a new USD 500 million term loan facility due September 2031, the proceeds of which were used to repay the remaining USD 225 million balance of an existing term loan due June 2026 and USD 275 million of outstanding borrowings under the Company's global revolving credit facility. 

Capital Returned to Shareholders 

In the first quarter of fiscal 2025, the Company returned USD 51.7 million to shareholders through cash dividends. Additionally, the Company repurchased 1,412,852 shares of common stock totaling USD 82.0 million under the Company's existing share repurchase program during the quarter, at an average price of USD 58.04 per share. 

The Company has approximately USD 308 million of remaining unused capacity under this program.

Restructuring Plan 

The Company is implementing a restructuring plan (the "Restructuring Plan") that is designed to drive operational and cost efficiencies and improve cash flows, while positioning the Company to continue to make strategic investments to drive long-term value for its stakeholders.

The Restructuring Plan includes:

• The permanent closure of the Company’s manufacturing facility in Connell, Washington, effective October 1, 2024;
• The temporary curtailment of certain production lines and schedules across its manufacturing network in North America;
• A reduction in operating expenses, including headcount reductions approximating 4% of the Company’s global workforce and the elimination of certain unfilled job positions; and
• A USD 100 million reduction in fiscal 2025 capital expenditures to USD 750 million from the Company’s previous estimate of USD 850 million.

The Company estimates that the Restructuring Plan will generate approximately USD 55 million in pre-tax cost savings and a reduction in working capital in fiscal 2025. 

The estimated savings and improvements in cash flow have been reflected in the Company’s updated fiscal 2025 financial targets. 

In connection with the Restructuring Plan, the Company expects to record total estimated pre-tax charges of USD 200 million to USD 250 million, of which the Company estimates that approximately 80 percent will be cash and 20 percent will be non-cash. 

The charges primarily relate to the cost of contracted raw potatoes that will not be used due to production line curtailments, accelerating depreciation of assets, the write-down of inventory and long-lived assets, employee severance and other one-time termination benefits, and other costs. 

The Company expects to record most of the pre-tax charges in the second quarter of fiscal 2025, with the remainder expected to be recorded during the second half of fiscal 2025. 

The Company updated its financial targets for fiscal 2025 as follows:

• The Company reaffirmed its net sales target range of USD 6.6 billion to USD 6.8 billion, reflecting growth of approximately 2 percent to 5 percent on a constant currency basis. The Company continues to expect net sales growth will be largely driven by increases in volume.
• The Company decreased its target ranges for GAAP net income to USD 395 million to USD 445 million and Diluted EPS to USD 2.70 to USD 3.15, including a net after-tax gain from blue chip swap transactions(2) in Argentina, foreign currency exchange, and unrealized mark-to-market derivative gains and losses and items impacting comparability of USD 22.7 million (USD 24.9 million before-tax, or USD 0.15 per share) during the first quarter of fiscal 2025; and estimated pre-tax charges of USD 200 million to USD 250 million (approximately USD 150 million to USD 190 million after-tax, or USD 1.05 to USD 1.30 per share) in connection with the Restructuring Plan.
• The Company expects to deliver at the low end of its Adjusted EBITDA(1) target range of USD 1,380 million to USD 1,480 million. The Company expects that higher manufacturing costs per pound net of restructuring cost savings, less favorable mix, and to a lesser extent, higher investments in price and trade than originally anticipated will offset a reduction in Adjusted SG&A(1).
• The Company lowered its Adjusted Net Income(1) target range of USD 600 million to USD 615 million, and Adjusted Diluted EPS(1) of USD 4.15 to USD 4.35, as the Company targets the lower end of its Adjusted EBITDA(1) range and increases its estimates for interest expense and effective tax rate(3) (full year). The Company previously estimated Adjusted Net Income(1) of USD 630 million to USD 705 million and Adjusted Diluted EPS(1) of USD 4.35 to USD 4.85.
• The Company reduced its Adjusted SG&A(1) target range to USD 680 million to USD 690 million from USD 740 million to USD 750 million, reflecting Restructuring Plan cost savings generated by headcount reductions across its commercial and support functions, and the elimination of certain unfilled job positions; as well as other cost savings initiatives not associated with the Restructuring Plan
• The Company increased its estimate of interest expense to approximately USD 185 million from its previous estimate of approximately USD 180 million to reflect higher average debt outstanding.
• The Company reaffirmed its estimate of depreciation and amortization expense of approximately USD 375 million.
• The Company increased its effective tax rate(3) (full year) estimate to approximately 25 percent from its previous estimate of 24 percent due to a higher proportion of earnings from its international locations with higher tax rates and discrete tax items.
• The Company reduced its target for cash used for capital expenditures, excluding acquisitions, if any, to approximately USD 750 million from its previous estimate of approximately USD 850 million reflecting the rephasing of certain capital projects, including pausing the next phase of its ERP build and implementation.

End Notes 
 

• (1)Adjusted Gross Profit, Adjusted SG&A, Adjusted Income from Operations, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA, are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures, including a discussion of guidance provided on a non-GAAP basis, and the associated reconciliations at the end of this press release for more information.
• (2)The Company enters into blue chip swap transactions to transfer U.S. dollars into Argentina primarily related to funding the Company’s announced capacity expansion in Argentina. The blue-chip swap rate can diverge significantly from Argentina's official exchange rate.