Potato Processor Lamb Weston Reports posts loss in Second Quarter Fiscal 2025

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

Tom Werner, President and CEO of Lamb Weston Holdings:

"Our financial results in the second quarter were below our expectations. Higher-than-expected manufacturing costs and softer volumes accounted for the shortfall, while price/mix and operating expenses were broadly in line with our targets for the quarter."

"In terms of the broader operating environment, we expect challenging conditions to persist through the remainder of fiscal 2025 and into fiscal 2026, driven primarily by an accelerating rate of capacity additions and continued near-term softening of global frozen potato demand below historical rates, particularly outside North America, until demand trends improve and capacity expansion normalizes. As a result, we are reducing our fiscal 2025 financial targets."

"The Company continues to take prudent steps to successfully adapt to this dynamic environment. In addition to the cost benefits we expect to realize from our Restructuring Plan, including our previously announced actions to permanently close or temporarily curtail production lines to better manage our factory utilization rates, we are actively evaluating additional cost-savings opportunities as we work to better align our operations with the current environment."

"This includes efforts to reduce manufacturing and supply chain costs and operating expenses to protect and improve profitability. We are executing with urgency and discipline to make lasting improvements to our operations as we weather what we believe are transitory challenges, and we remain focused on leveraging our solid fundamentals and balance sheet to deliver value to shareholders."

Q2 2025 Commentary

Restructuring Plan

On October 1, 2024, the Company announced a restructuring plan (the "Restructuring Plan"), which is designed to drive operational and cost efficiencies and improve cash flows. The Restructuring Plan includes the permanent closure of a manufacturing facility, the temporary curtailment of certain production lines and schedules across the Company's manufacturing network in North America, and reductions in employee headcount, other operating expenses, and capital expenditures. 

In connection with the Restructuring Plan, the Company expects to recognize total pre-tax charges of USD 190 million to USD 210 million. Any changes to estimates or timing will be reflected in the Company's results of operations in future periods. The Company expects actions in connection with the Restructuring Plan will be substantially complete by the end of the fourth quarter of fiscal 2025. The Company estimates that the Restructuring Plan will generate approximately USD 55 million in pre-tax cost savings and reduce working capital in fiscal 2025. 

Net income (loss) for the thirteen and twenty-six weeks ended November 24, 2024 included:

• USD 159.1 million (USD 123.6 after-tax, or USD 0.86 per share) of pre-tax charges, of which USD 114.5 million were cash expenses and USD 44.6 million of non-cash expenses
  • USD 75.5 million (USD 57.4 million after-tax, or USD 0.40 per share) was included in Cost of Sales.
  • USD 74.6 million (USD 59.3 million after-tax, or USD 0.41 per share) was included in Restructuring expense.
  • USD 9.0 million (USD 6.9 million after-tax, or USD 0.05 per share) was included in Equity method investment earnings.

Q2 Results of Operations

Net sales declined USD 131.2 million, to USD 1,600.9 million, down 8 percent versus the prior year quarter. Volume declined 6 percent, largely reflecting the impact of soft global restaurant traffic trends, customer share losses (net of gains), and the carryover effect of the Company's decision in the prior year to exit certain lower-priced and lower-margin businesses in Europe to strategically manage customer and product mix.

Price/mix declined 2 percent, reflecting the impact of planned investments in price and trade support to attract and retain volume in North America, pricing actions in key international markets in response to a more competitive environment, and unfavorable channel and product mix. The benefit of inflation-driven pricing actions in EMEA partially offset the decline in price/mix. 

Gross profit declined USD 197.8 million versus the prior year quarter to USD 277.8 million and included USD 75.5 million of pre-tax charges (USD 57.4 million after-tax, or USD 0.40 per share) related to the Restructuring Plan, and USD 9.8 million (USD 7.3 million after-tax, or USD 0.05 per share) of unrealized gains related to mark-to-market adjustments associated with commodity hedging contracts.

The prior year quarter included USD 4.6 million (USD 3.5 million after-tax, or USD 0.02 per share) of unrealized losses related to mark-to-market adjustments associated with commodity hedging contracts, and USD 1.8 million of benefit (USD 1.3 million after-tax, or USD 0.01 per share) associated with the sale of inventory stepped-up to fair value following the completion of the Company's acquisition of the remaining interest in Lamb-Weston/Meijer v.o.f. ("LW EMEA"), its former joint venture in Europe.

Adjusted Gross Profit(1) declined USD 134.9 million versus the prior year quarter to USD 343.5 million due to unfavorable price/mix, higher manufacturing costs per pound, and lower sales volumes.

The higher manufacturing costs per pound largely reflected input cost inflation, primarily driven by higher raw potato costs; utilization-related production costs and inefficiencies; higher transportation and warehousing costs; and USD 15.8 million of higher depreciation expense largely associated with the Company's recent capacity expansions in China and the U.S. Manufacturing costs in the prior year quarter included a USD 64.6 million pre-tax charge for the write-off of excess raw potatoes.

International Summary

Net sales for the International segment, which includes all sales to customers outside of North America, declined USD 36.2 million to USD 528.8 million, down 6 percent versus the prior year quarter. Volume declined 6 percent, largely reflecting declining or softening restaurant traffic in key international markets, the impact of customer share losses net of gains, and 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.

Price/mix was flat with the prior year quarter as pricing actions in key international markets, in response to a more competitive environment, were offset by the benefit of inflation-driven pricing actions in EMEA. 

International Segment Adjusted EBITDA declined USD 52.8 million to USD 47.4 million. Higher manufacturing costs per pound and lower volume largely drove the decline. International Segment Adjusted EBITDA in the prior year quarter included a USD 7.6 million allocated charge for the write-off of excess raw potatoes.

Equity Method Investment Earnings 

Equity method investment earnings from unconsolidated joint ventures were USD 2.1 million and USD 4.7 million for the second quarter of fiscal 2025 and 2024, respectively. The results in the current quarter include USD 9.0 million (USD 6.9 million after-tax, or USD 0.05 per share) of costs associated with the Restructuring Plan.

Excluding this item, Adjusted Equity Method Investment Earnings(1) increased USD 6.4 million compared to the prior year quarter. Equity method investment earnings in the prior year quarter included a USD 6.3 million charge for the write-off of excess raw potatoes. The results for the current and prior year quarters reflect earnings associated with the Company's 50 percent interest in Lamb Weston/RDO Frozen, an unconsolidated potato processing joint venture in Minnesota.

Cash Flows, Capital Expenditures and Liquidity 

Net cash provided by operating activities for the first half of fiscal 2025 was USD 429.3 million, down USD 25.9 million versus the prior year period, primarily due to lower earnings, which was partially offset by favorable changes in working capital. 

Capital expenditures, net of proceeds from blue chip swap transactions, during the first half of fiscal 2025 were USD 486.4 million, down USD 73.0 million versus the prior year period. This decrease was primarily due to higher investments to support strategic capacity expansion projects in China, the U.S., the Netherlands, and Argentina during the prior year period.

The projects in China and the U.S. were completed during the second and fourth quarters of fiscal 2024, respectively. The project in the Netherlands was completed during the second quarter of fiscal 2025, while the project in Argentina is on track to be completed by mid-calendar 2025. 

As of November 24, 2024, the Company had USD 79.0 million of cash and cash equivalents, with USD 1,211.9 million of available liquidity under its revolving credit facility.

Capital Returned to Shareholders

In the second quarter of fiscal 2025, the Company returned 51.6 million USD to shareholders through cash dividends. There were no repurchases of common stock under the Company's share repurchase program during the quarter. In the first half of fiscal 2025, the Company returned 103.3 million USD to shareholders through cash dividends and repurchased 82.0 million USD of its common stock, with an aggregate of 1,412,852 shares repurchased at an average price of 58.04 USD per share. 

In December 2024, the Board of Directors approved an increase of 250 million USD in the Company's existing 500 million USD share repurchase authorization, bringing the total to 750 million USD. After giving effect to this increase, approximately 558 million USD remained authorized and available for repurchase under the share repurchase program. 

Additionally, the Board of Directors declared a quarterly dividend of 0.37 USD per share of Lamb Weston common stock, a 0.01 USD increase. The dividend is payable on February 28, 2025, to stockholders of record as of the close of business on January 31, 2025.

Updated Fiscal 2025 Outlook

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

• The Company reduced its annual net sales target range to 6.35 billion USD to 6.45 billion USD, from a previous range of 6.6 billion USD to 6.8 billion USD, primarily reflecting the increased competitive environment on price/mix and volume in its International Segment, incremental volume pressure in North America, and its financial performance in the second quarter. Accordingly, the Company is targeting net sales of 3.1 billion USD to 3.2 billion USD in the second half of fiscal 2025, or growth of approximately 1 percent to 4 percent versus the prior year period, with growth expected to be driven by higher volume.
• The Company reduced its target ranges for GAAP net income to 330 million USD to 350 million USD and Diluted EPS to 2.30 USD to 2.45 USD, including a net loss from Restructuring Plan charges and other items impacting comparability of 107.9 million USD (143.9 million USD before-tax, or 0.76 USD per share) during the first half of fiscal 2025. The Company previously targeted a GAAP net income range of 395 million USD to 445 million USD and a Diluted EPS range of 2.70 USD to 3.15 USD.
• The Company reduced its Adjusted EBITDA target range to 1,170 million USD to 1,210 million USD, from a previous target of approximately 1,380 million USD, primarily reflecting its financial performance in the second quarter, the reduction in forecasted sales described above, and increased manufacturing costs.
• The Company reduced its Adjusted Net Income target range to 440 million USD to 460 million USD, and Adjusted Diluted EPS to 3.05 USD to 3.20 USD, largely reflecting the Company's lower forecast for net sales and Adjusted Gross Profit, as well as a higher effective tax rate. The Company previously estimated Adjusted Net Income of 600 million USD to 615 million USD and Adjusted Diluted EPS of 4.15 USD to 4.35 USD.
• The Company expects to be at the top of the range for its Adjusted SG&A target range of 680 million USD to 690 million USD.

The Company's other financial targets are as follows:

• Depreciation and amortization expense of approximately USD 375 million
• An effective tax rate(3) (full year) estimate of approximately 28 percent, excluding the impact of comparability items, which is an increase from the Company's previous estimate of approximately 25 percent
• Cash used for capital expenditures, excluding acquisitions, if any, of approximately USD 750 million.

End Notes 

(1) Adjusted Gross Profit, Adjusted SG&A, Adjusted Income from Operations, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Equity Method Investment Earnings, 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. 

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