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Lamb Weston Holdings, Inc. (LW - Free Report) continues to benefit from its effective pricing strategy. The provider of value-added frozen potato products remains dedicated to expanding its capacity as a means to foster further growth. However, its volumes are being impacted by reduced restaurant traffic in the near term.
Let’s delve deeper.
Pricing Actions on Track
Lamb Weston has been capitalizing on a favorable pricing environment, a trend that persisted into the third quarter of fiscal 2024, evidenced by a 4% increase in price/mix. This uptick can be attributed to ongoing pricing actions driven by inflation, which were initiated in fiscal 2023. Additionally, pricing adjustments implemented throughout this year across its North America and International segments have contributed to the positive performance. The company's continued focus on pricing strategies is expected to bolster its top-line growth further. Impressively, management anticipates net sales within the range of $1.69-$1.75 billion, supported by stronger price/mix dynamics in fourth-quarter fiscal 2024.
Image Source: Zacks Investment Research
Efforts to Boost Offerings
The Zacks Rank #3 (Hold) company’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. The company’s efforts to boost offerings and expand capacity enable it to meet the rising demand conditions for snacks and fries effectively.
For the first three quarters of fiscal 2024, the company incurred capital expenditures of $828.3 million, owing to construction and equipment costs for the new China factory, which started operations in November. Also, it incurred costs associated with capacity expansion projects in Idaho, the Netherlands and Argentina. For the fiscal 2024, the company expects cash to be used for capital expenditures to be $950 million.
Volume & Cost Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in the third quarter of fiscal 2024. Volumes declined 16%, as a result of unfilled customer orders during the company's shift to a new enterprise resource planning system or ERP in North America. The remaining downside was mainly due to subdued restaurant traffic patterns in North America and other key global markets, along with the ongoing impact of the company's strategic decision last year to discontinue certain lower-priced and lower-margin business lines aimed at optimizing the customer and product mix. We believe that traffic trends continue to remain challenging as consumers are still adapting to higher menu prices.
Although the company’s adjusted gross profit increased in the fiscal third quarter, it was hurt to some extent by increased costs per pound. Increased costs per pound reflect mid-single-digit cost inflation for key inputs like raw potatoes, labor, energy and ingredients like grains and starches used in product coatings. The persistence of these factors is likely to remain a threat to the company’s performance.
Road Ahead Looks Tough
Lamb Weston is likely to keep witnessing the adverse impact of ERP transition and subdued near-term restaurant traffic. Concurrently, management recently curtailed its guidance for the fiscal 2024 thanks to a cautious view of the consumer.
For the fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion. Earlier, the company projected net sales of $6.8-$7.0 billion. The lowered guidance can be accountable to the greater-than-expected effect on customer order fulfillment rates from the ERP transition in the third quarter, sluggish near-term restaurant traffic and retail trends in North America and other core international markets. The company now anticipates fiscal 2024 adjusted earnings per share (EPS) of $5.50-$5.65 compared with $5.70-$6.15 expected earlier.
LW’s stock has declined 17.7% in the past three months against the industry’s 4% growth.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.3% and 5.6%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 5.4%, on average.
The J. M. Smucker Company (SJM - Free Report) , a branded food and beverage product company, currently carries a Zacks Rank #2. SJM has a trailing four-quarter earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings indicates growth of 7.6% from the year-ago reported figure.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2% on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 24.6% from the year-ago reported numbers.
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Lamb Weston (LW) Continues Pricing Strategy Amid Cost Pressures
Lamb Weston Holdings, Inc. (LW - Free Report) continues to benefit from its effective pricing strategy. The provider of value-added frozen potato products remains dedicated to expanding its capacity as a means to foster further growth. However, its volumes are being impacted by reduced restaurant traffic in the near term.
Let’s delve deeper.
Pricing Actions on Track
Lamb Weston has been capitalizing on a favorable pricing environment, a trend that persisted into the third quarter of fiscal 2024, evidenced by a 4% increase in price/mix. This uptick can be attributed to ongoing pricing actions driven by inflation, which were initiated in fiscal 2023. Additionally, pricing adjustments implemented throughout this year across its North America and International segments have contributed to the positive performance. The company's continued focus on pricing strategies is expected to bolster its top-line growth further. Impressively, management anticipates net sales within the range of $1.69-$1.75 billion, supported by stronger price/mix dynamics in fourth-quarter fiscal 2024.
Image Source: Zacks Investment Research
Efforts to Boost Offerings
The Zacks Rank #3 (Hold) company’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. The company’s efforts to boost offerings and expand capacity enable it to meet the rising demand conditions for snacks and fries effectively.
For the first three quarters of fiscal 2024, the company incurred capital expenditures of $828.3 million, owing to construction and equipment costs for the new China factory, which started operations in November. Also, it incurred costs associated with capacity expansion projects in Idaho, the Netherlands and Argentina. For the fiscal 2024, the company expects cash to be used for capital expenditures to be $950 million.
Volume & Cost Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in the third quarter of fiscal 2024. Volumes declined 16%, as a result of unfilled customer orders during the company's shift to a new enterprise resource planning system or ERP in North America. The remaining downside was mainly due to subdued restaurant traffic patterns in North America and other key global markets, along with the ongoing impact of the company's strategic decision last year to discontinue certain lower-priced and lower-margin business lines aimed at optimizing the customer and product mix. We believe that traffic trends continue to remain challenging as consumers are still adapting to higher menu prices.
Although the company’s adjusted gross profit increased in the fiscal third quarter, it was hurt to some extent by increased costs per pound. Increased costs per pound reflect mid-single-digit cost inflation for key inputs like raw potatoes, labor, energy and ingredients like grains and starches used in product coatings. The persistence of these factors is likely to remain a threat to the company’s performance.
Road Ahead Looks Tough
Lamb Weston is likely to keep witnessing the adverse impact of ERP transition and subdued near-term restaurant traffic. Concurrently, management recently curtailed its guidance for the fiscal 2024 thanks to a cautious view of the consumer.
For the fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion. Earlier, the company projected net sales of $6.8-$7.0 billion. The lowered guidance can be accountable to the greater-than-expected effect on customer order fulfillment rates from the ERP transition in the third quarter, sluggish near-term restaurant traffic and retail trends in North America and other core international markets. The company now anticipates fiscal 2024 adjusted earnings per share (EPS) of $5.50-$5.65 compared with $5.70-$6.15 expected earlier.
LW’s stock has declined 17.7% in the past three months against the industry’s 4% growth.
Stocks to Consider
McCormick & Company, Inc. (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.3% and 5.6%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 5.4%, on average.
The J. M. Smucker Company (SJM - Free Report) , a branded food and beverage product company, currently carries a Zacks Rank #2. SJM has a trailing four-quarter earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings indicates growth of 7.6% from the year-ago reported figure.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2% on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 24.6% from the year-ago reported numbers.