Lamb Weston Hldgs Reports Q1 2027 Results: Full Earnings Call Transcript

On Tuesday, Lamb Weston Hldgs (NYSE: LW ) discussed first-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Lamb Weston Hldgs exceeded its Q1 expectations, leading to an increase in its full-year fiscal 2027 outlook, with raised forecasts for net sales, adjusted EPS, and adjusted EBITDA.

The company has revamped half of its executive leadership team and implemented organizational changes to improve speed, decision-making, and accountability, which are expected to enhance EBITDA margins. North America saw its seventh consecutive quarter of volume growth, with net sales, gross margin, and adjusted EBITDA improving year-over-year. International performance, particularly in EMEA, faced challenges with margins due to higher potato costs, but actions are being taken to improve capacity utilization and manage market dynamics.

The strategic focus is on building customer relationships and driving innovation, which has resulted in new customer wins and strong retention rates in contract renewals. Cost-saving initiatives are ongoing, with a cultural shift towards zero-based budgeting to identify savings and support growth and innovation investments. The company anticipates low single-digit growth in net sales for fiscal 2027, with a focus on managing inflationary pressures through pricing actions and cost savings. Lamb Weston Hldgs continues to leverage strong customer relationships and innovation to maintain momentum in its key North American market and improve performance internationally.

Full Transcript OPERATOR Good day and welcome to the Lamb Weston Hldgs first quarter fiscal 2027 earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Debbie Hancock, Vice President of Investor Relations Good morning and thank you for joining us for Lamb Weston Hldgs' first quarter fiscal 2027 earnings call. I'm Debbie Hancock, Lamb Weston Hldgs' Vice President of Investor Relations. Earlier today we issued our press release that we will use for our discussion today. com.

Slides will be shared during our webcast and will also be posted on the website after the call. Please note that during our remarks we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements.

Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release and the appendix to our presentation. Joining me today are Yann Krups, Executive Chair; Mike Smith, President and CEO; and Jim Gray, Chief Financial Officer.

Each will provide prepared remarks and then will be available to take your questions. I will now turn the call over to Jan. Yann Krups, Executive Chair Thanks, Debbie, and good morning everyone. I hope you're doing well.

I'm encouraged to see the organization embracing the changes that we have been driving to make the company more performance driven, focused on value creation, and deliberate on resources and capital allocation. I'm happy to see our efforts reflected in our strong first quarter results where we overdelivered our Q1 expectations and built solid momentum for the remainder of the year. I'm also pleased that we are today able to raise the full-year forecast on net sales, adjusted EPS, and adjusted EBITDA as our strategy continues to take hold, customers are recognizing us for the value we deliver, and our execution continues to solidify.

During our full-year results call, I shared my key priorities to drive value creation for Lamb Weston Hldgs. Let me provide you a quick update. From my perspective regarding people, we have changed half of the executive leadership team, building the expertise and capabilities needed to drive our strategic priorities.

We implemented target setting and compensation changes that drive individual and regional accountability, and we just announced an organization redesign that drives significant improvements in speed of decision making, simplicity, and accountability, while delivering efficiencies that will improve our EBITDA margin and offer an opportunity to shift resources from back office staff to frontline growth opportunities. Regarding strategy, we have advanced into the how-to-win stage. After completing the where-to-play work, each country cluster owner will have a clear mission and clarity on how they contribute to Lamb Weston Hldgs' growth algorithm.

We have identified opportunities for best practice sharing through Lamb Weston Hldgs' execution playbooks, for elevated innovation impact, and for stronger joint business planning through new capabilities. Our work on where to play may lead to partnership and divestiture opportunities. It has already catalyzed capacity rationalization for us, which is also something we continue to see across the industry with capacity being shuttered and projects being cancelled or postponed. Regarding resources, we have now started implementing ZBB as a new muscle and routine for the company, already realizing real savings in the first phase.

Payment terms have seen improvements, and the supply chain has organized its first savings championship where over 70 team members from across all region functions came together to benchmark and stretch beyond the planned cost savings initiatives. We have also identified opportunities to further deploy AI to enhance our operating performance. We are delivering on the promise of significant operational and cultural changes at Lamb Weston Hldgs. At the Board level, we also lead by example and reduced the board to 11 members from 13.

There is a lot more to come, though, and we will continue to update on the progress on these and other initiatives. We see real sizable opportunities to create more value for Lamb Weston Hldgs, our growers, our team members, our partners and our shareholders. We also see greater value in the company than what we believe is reflected in the current stock price. We are executing against our key initiatives with a great sense of urgency and confidence that the performance and ownership culture we are building will enable us to further differentiate Lamb Weston Hldgs.

Now let me hand it over to Mike to discuss the progress the team has realized in Q1. Over to you, Mike. Michael Smith, President and Chief Executive Officer Thank you, Jan, and good morning everyone. The Lamb Weston Hldgs team delivered a solid start to fiscal 2027 with net sales, adjusted EPS, and adjusted EBITDA results above our guidance.

As a result, we are increasing our full-year fiscal 2027 outlook. Underlying these results are several favorable trends. We grew volume for the seventh consecutive quarter in North America and are exceeding end market growth. This in part reflects the fact that we over-indexed to chicken-focused QSRs.

Price/mix improved as we lapped targeted investments and customers recognized the value we bring. Supply/demand is harmonizing as industry capacity continues to rationalize and capacity expansion projects are increasingly delayed or shuttered, and Europe experiences a tighter crop environment. The team continues to raise the bar, strengthening our customer relationships, addressing challenges with urgency and agility in a dynamic market, and relentlessly focusing on delivering improved financial performance. North America had a good quarter.

Sales volume, net sales, gross margin, and segment adjusted EBITDA dollars all improved year over year and were ahead of expectations. International segment performance met our expectations but is below our long-term aspirations. Segment adjusted EBITDA increased sequentially versus fourth quarter. We continue to control what is within our control and take action to better position our business for long-term success.

Our cost savings program remains robust and on track. These aggressive programs have permanently lowered our cost of operating while building new capabilities and a culture focused on costs and process improvement. We are successfully executing our Focus to Win strategy, demonstrating positive results and positioning us for improved performance long term. Our North America business started the year with good momentum with existing customers and fueled by new wins.

Over the past year we have added several growing customers, expanded business with existing customers, and we have built a strong mix of sales across QSR restaurant channels. Our focus on strengthening customer partnerships and driving performance through value-added innovation is our foundation for growth. We have completed about 70% of our contracts in for renewal this year with a high retention rate and pricing that reflects the current inflationary environment. We anticipate completing most of the outstanding discussions over the next two quarters.

7% in the first quarter. 4%. Price/mix reflects equal parts price and mix, including the impact of carryforward targeted pricing we implemented in fiscal 2026 as well as ongoing mix shifts with growth in multinational chains and private label offerings. This was partially offset by recent inflation-justified pricing actions we have taken.

As our most strategic and important market, we are encouraged by the solid momentum and execution of our North America business. As I mentioned earlier, our results for the quarter were in line with our guide but they do not yet meet our expectations for long-term performance. As we have worked through the carry-in of prior year's potato costs, we expect segment adjusted EBITDA margin to improve from first quarter levels in EMEA. We are managing market challenges by acting on what is under our control.

We are balancing our network utilization as demonstrated by stopping production at our brookhysenvoors facility, and we have successfully transitioned our customers' fulfillment to other Lamb Weston Hldgs locations, enabling further cost optimization. We are well positioned to raise Lamb Weston Hldgs' capacity utilization in the region to more than 90%. As reported in the media, the market has seen announcements from other manufacturers regarding capacity closures or delays in future capacity expansion.

This includes one announcing a closure of a Belgium facility and delays in new capacity additions from others, including media reports of a cancellation of a previously announced large new facility in Germany. Furthermore, in contrast to last year's robust crop yields, this year's European crop has been negatively impacted in both quality and yield due to extensive heat and dry conditions. Non-contracted spot prices for open market potatoes are up and we anticipate tighter supply. Potatoes will be the limiter in the industry this year and we expect not all open industry capacity will be used.

Due to our extensive long-standing grower relationships and our disciplined potato contracting cycle, we are in a good supply position to meet expected customer demand in contrast to some other players who have historically placed more reliance on the spot market. Additionally, given our expectation of rising potato costs, earlier this month we implemented a price increase in Europe. Beyond EMEA, net sales and adjusted EBITDA grew in China driven by multinational chain demand and our ability to execute LTOs with key customers.

Our focus on favorable mix, productivity improvements, and better fixed factory absorption drove much higher adjusted EBITDA and margins for the quarter. Across the rest of Asia Pacific, we were off to a slower volume start and have engaged with our largest customers in joint planning for the balance of the year. Latin America continues to win business and ramp production at our newest plant in Mar del Plata, Argentina, expanding both volume and margin. We recently began shipping to a strategic global QSR, a new customer in the region.

For our local team, we are focused on building volume to optimal production levels and emphasizing our quality point of differentiation. As we indicated previously, our work on the prioritization of markets and channels as part of Focus to Win will identify where we see our best opportunities across the geographic markets. The international landscape is complex and we are entering a pivotal new phase of execution to further identify opportunities to better align our organization with the needs of our Focus to Win strategy.

As Jan referenced, we recently completed an organizational diagnostic to drive greater speed, simplicity, Accountability and consistency in how we operate. As our business had evolved, our structure had become more complex and no longer fully reflected how we needed to operate. Through this work, we are simplifying our structure, reducing management layers and broadening spans of control, and in certain cases, consolidating regions and leadership roles. These changes, including eliminating selected roles and open positions, better align our organization with our priorities and we believe will position us for greater long-term success.

Mark Schroeder, President of International, will be leaving Lamb Weston Hldgs at the end of the calendar year. We wish Mark the best in his future endeavors. We have begun an outside search to identify his successor to provide us with the operational experience, execution and urgency needed in this critical leadership role as we focus on how our international business can deliver the most shareholder value. In addition, as we work on the prioritization of markets and channels in the near term, we are taking action to simplify our international management structure by consolidating our China and Asia Pacific regions into one unified APAC region.

Our goal is to build a simpler, faster and more agile organization that is better positioned to serve customers, support team members and deliver sustainable growth. It also allows us to reinvest in areas that strengthen our competitive position, including our commercial sales organization, innovation and capabilities that bring us closer to customers. Also, as Yann spoke to, we began a new phase of our Cost Savings program, implementing new budgeting and procurement practices. We launched an enterprise-wide zero-based budgeting process that is analyzing spending across the organization through intensive reviews by cost, package owners and procurement.

We are identifying incremental savings to drive margin expansion and to selectively reinvest in revenue growth and innovation. This is a cultural transition to an owner's mindset, enabling the business to consistently find savings and fund growth initiatives. Our focus on cost is evident in our results. Adjusting for one-timers, our SG&A was flat to prior year.

Inflation has continued to drive input costs higher. The teams are actively managing this impact through our Cost Savings program, which we began over a year ago. We also will continue to make appropriate pricing actions as warranted. Our Focus to Win strategy is working.

We have established clarity to our teams on their objectives tied to specific KPIs to measure and incentivize success, and we are making progress across our strategic pillars of prioritizing markets and channels, strengthening customer relationships, executing with excellence and setting the pace for innovation. We've already highlighted some of the progress from our focus on customers and executing with excellence. In addition, we are shaping our prioritization of markets and channels, and as we progress our strategy work, we have held multiple cross-functional global team meetings to share best practices for success across markets.

We anticipate completing this work in the coming months, and we will share more at an Investor Day in early calendar 2027. Finally, our product teams continue to deliver industry-leading innovation with new offerings to drive menu innovation and traffic for our customers. As consumer tastes and preferences change, with existing customers we are creating excitement in the category with limited-time offerings for QSR customers around the world. One example is Black pepper flavored Stars in China.

These collaborations drive uniqueness in restaurant menus and favorable mix for both operators and Lamb Weston Hldgs, and we continue to find ways to expand our market. S. Education market, we are launching Reduced Sodium Tater Puffs and star-shaped puffs that deliver crispy texture and stay hotter longer. Customer centricity is the North Star at Lamb Weston Hldgs and informs everything that we do.

We will continue to drive great product and service to ensure we maintain the category leadership position we have earned. Let me now hand the call over to Jim. Jim Gray, Chief Financial Officer Thank you, Mike, and good morning, everyone. As Mike said, we are making good progress in the execution of Focus to Win while managing a challenging business environment.

For the quarter, net sales finished at 1,670,000,000, which is up 1% from prior year. Adjusted diluted earnings per share were 75 cents, which is also up 1% from prior year. Adjusted EBITDA was better than our expectations at 286 million, down 5% from prior year due to the carry-in of the prior year's potato costs.