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Lamb Weston (LW) Down 8.8% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have lost about 8.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lamb Weston due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lamb Weston Q1 Earnings Top Estimates, Sales Fall Y/Y
Lamb Weston reported first-quarter fiscal 2021 results, wherein both top and bottom lines declined year over year and the former fell short of the Zacks Consensus Estimate. The company’s earnings of 61 cents per share declined 23% year over year due to soft sales and lower gross profit. The bottom line, however, easily surpassed the Zacks Consensus Estimate of 30 cents per share.
Net sales came in at $871.5 million, which tumbled 12% year on year and missed the consensus mark of $878 million. Volumes fell 14% year over year due to a decline in demand for frozen potato products in the away-from-home channel due to restrictions on restaurants and other foodservice operations to curb the coronavirus spread. Nevertheless, higher at-home consumption of frozen potato products amid the pandemic offered some respite. Notably, the price/mix rose 2% on the back of improvement in the Retail and Foodservice segments.
Gross profit decreased nearly 14% to $213.8 million due to soft sales and escalated costs associated with COVID-19, such as inefficiencies and production costs related to factory utilization and costs associated with producing retail products on channels mainly created for foodservice products, among others.
SG&A expenses declined $0.5 million to reach $78.1 million on the back of reduced advertising and promotional costs as well as effective cost management. This was somewhat mitigated by higher pandemic-related costs discussed above. EBITDA (including unconsolidated joint ventures) declined 13% to $201.8 million due to lower operating income and pandemic-led expenses worth $21 million.
Segment Analysis
Sales in the Global segment dropped 14% to $447.5 million. Volumes and price/mix fell 13% and 1%, respectively. Volumes were hurt by lower demand for frozen potato products away from home due to the adverse impact of coronavirus on restaurants and other foodservice-related traffic. Traffic was soft in the United States as well as the main international markets. Product contribution margin in the segment dropped 24% to $77.8 million due to reduced sales and pandemic-related expenses.
Foodservice sales declined 22% to $236.7 million. Price/mix rose 6%, whereas volumes declined 28%. Volumes were marred by lower demand due to pandemic-led traffic declines at restaurants as well as non-commercial customers like lodging and hospitality, schools, sports and entertainment, and workplace environments, among others. Product contribution margin fell 16% to reach $85.8 million on account of reduced sales volume and pandemic-related costs, somewhat made up by improved price/mix.
In the Retail segment, sales grew 19% to $153.9 million. Price/mix and volumes increased 8% and 11%, respectively. Volumes were backed by increased demand due to the pandemic-led higher at-home consumption. Product contribution margin improved 24% to $35.8 million on the back of increased sales volume, improved mix and reduced advertising and promotional costs. This was partly countered by costs related to COVID-19.
Other Financial Details
Lamb Weston ended the quarter with cash and cash equivalents of $1,032.5 million, long-term debt and financing obligations (excluding current portion) of $2,980.8 million and total shareholders’ equity of $332 million. The company generated $250.6 million as net cash from operating activities during the quarter, wherein capital expenditures amounted to $33.2 million. Management paid out dividends worth $34 million during the quarter. In the first quarter, management repaid $495 million, which was borrowed from the company’s revolving credit facility during the fourth quarter of fiscal 2020.
Moreover, the company unveiled an amendment to its revolving credit facility on Sep 17, increasing its capacity to $750 million, with the maturity extended to Sep 17, 2023. In connection with this, the company utilized cash in hand to pay the outstanding term loan facility of $271.9 million that was due in November 2021. As of the fiscal month ended Sep 27, 2020, Lamb Weston did not have any outstanding borrowings on its amended revolving credit facility, and had cash and cash equivalents of $800 million.
Other Updates
The company provided an update on the shipping trends for the first four weeks of the second quarter of fiscal 2020, until the week ended Sep 25. In this regard, the company’s shipments in North America are nearly 90% of the prior-year levels, driven by demand from quick-serve restaurants and retail, along with continued recovery at full-service restaurants. Shipments in Europe, Australia and China are reaching year-ago levels. Shipments to other markets in Latin America and Asia are falling short of the demand recovery, stemming from customers and distributors’ inventory optimizing actions.
On the cost front, the company is focused on taking steps to curtail the cost structure and expand efficiencies in manufacturing as well as commercial operations. These include closing down of facilities temporarily, modifying production schedules and more. However, the company anticipates continued incremental pandemic-led costs at its manufacturing, commercial, functional support and supply-chain operations. These include costs related to ensuring sanitization, and health and safety, increased transportation and warehousing expenses, and costs to retain functional support workers, among others.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.27% due to these changes.
VGM Scores
At this time, Lamb Weston has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lamb Weston has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Lamb Weston (LW) Down 8.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have lost about 8.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lamb Weston due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lamb Weston Q1 Earnings Top Estimates, Sales Fall Y/Y
Lamb Weston reported first-quarter fiscal 2021 results, wherein both top and bottom lines declined year over year and the former fell short of the Zacks Consensus Estimate. The company’s earnings of 61 cents per share declined 23% year over year due to soft sales and lower gross profit. The bottom line, however, easily surpassed the Zacks Consensus Estimate of 30 cents per share.
Net sales came in at $871.5 million, which tumbled 12% year on year and missed the consensus mark of $878 million. Volumes fell 14% year over year due to a decline in demand for frozen potato products in the away-from-home channel due to restrictions on restaurants and other foodservice operations to curb the coronavirus spread. Nevertheless, higher at-home consumption of frozen potato products amid the pandemic offered some respite. Notably, the price/mix rose 2% on the back of improvement in the Retail and Foodservice segments.
Gross profit decreased nearly 14% to $213.8 million due to soft sales and escalated costs associated with COVID-19, such as inefficiencies and production costs related to factory utilization and costs associated with producing retail products on channels mainly created for foodservice products, among others.
SG&A expenses declined $0.5 million to reach $78.1 million on the back of reduced advertising and promotional costs as well as effective cost management. This was somewhat mitigated by higher pandemic-related costs discussed above. EBITDA (including unconsolidated joint ventures) declined 13% to $201.8 million due to lower operating income and pandemic-led expenses worth $21 million.
Segment Analysis
Sales in the Global segment dropped 14% to $447.5 million. Volumes and price/mix fell 13% and 1%, respectively. Volumes were hurt by lower demand for frozen potato products away from home due to the adverse impact of coronavirus on restaurants and other foodservice-related traffic. Traffic was soft in the United States as well as the main international markets. Product contribution margin in the segment dropped 24% to $77.8 million due to reduced sales and pandemic-related expenses.
Foodservice sales declined 22% to $236.7 million. Price/mix rose 6%, whereas volumes declined 28%. Volumes were marred by lower demand due to pandemic-led traffic declines at restaurants as well as non-commercial customers like lodging and hospitality, schools, sports and entertainment, and workplace environments, among others. Product contribution margin fell 16% to reach $85.8 million on account of reduced sales volume and pandemic-related costs, somewhat made up by improved price/mix.
In the Retail segment, sales grew 19% to $153.9 million. Price/mix and volumes increased 8% and 11%, respectively. Volumes were backed by increased demand due to the pandemic-led higher at-home consumption. Product contribution margin improved 24% to $35.8 million on the back of increased sales volume, improved mix and reduced advertising and promotional costs. This was partly countered by costs related to COVID-19.
Other Financial Details
Lamb Weston ended the quarter with cash and cash equivalents of $1,032.5 million, long-term debt and financing obligations (excluding current portion) of $2,980.8 million and total shareholders’ equity of $332 million. The company generated $250.6 million as net cash from operating activities during the quarter, wherein capital expenditures amounted to $33.2 million. Management paid out dividends worth $34 million during the quarter. In the first quarter, management repaid $495 million, which was borrowed from the company’s revolving credit facility during the fourth quarter of fiscal 2020.
Moreover, the company unveiled an amendment to its revolving credit facility on Sep 17, increasing its capacity to $750 million, with the maturity extended to Sep 17, 2023. In connection with this, the company utilized cash in hand to pay the outstanding term loan facility of $271.9 million that was due in November 2021. As of the fiscal month ended Sep 27, 2020, Lamb Weston did not have any outstanding borrowings on its amended revolving credit facility, and had cash and cash equivalents of $800 million.
Other Updates
The company provided an update on the shipping trends for the first four weeks of the second quarter of fiscal 2020, until the week ended Sep 25. In this regard, the company’s shipments in North America are nearly 90% of the prior-year levels, driven by demand from quick-serve restaurants and retail, along with continued recovery at full-service restaurants. Shipments in Europe, Australia and China are reaching year-ago levels. Shipments to other markets in Latin America and Asia are falling short of the demand recovery, stemming from customers and distributors’ inventory optimizing actions.
On the cost front, the company is focused on taking steps to curtail the cost structure and expand efficiencies in manufacturing as well as commercial operations. These include closing down of facilities temporarily, modifying production schedules and more. However, the company anticipates continued incremental pandemic-led costs at its manufacturing, commercial, functional support and supply-chain operations. These include costs related to ensuring sanitization, and health and safety, increased transportation and warehousing expenses, and costs to retain functional support workers, among others.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.27% due to these changes.
VGM Scores
At this time, Lamb Weston has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lamb Weston has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.