A month has gone by since the last earnings report for Lamb Weston (
LW Quick Quote LW - Free Report) . Shares have lost about 1.1% 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 Q4 Earnings & Sales Top Estimates, Rise Y/Y
Lamb Weston posted robust fourth-quarter fiscal 2021 results, wherein adjusted earnings of 44 cents per share came a penny ahead of the Zacks Consensus Estimate. In the year-ago period, the company posted a loss of 1 cent per share.
Net sales came in at $1,007.5 million, which advanced 19% year on year and beat the consensus mark of $940 million. Volumes rose 13% year over year and price/mix went up 6%. On excluding the impact of an additional week in the year-ago period, net sales and volumes jumped 28% and 21%, respectively. Sales volumes were backed by a rebound in the away-from-home frozen potato products demand, with pandemic-led curbs on restaurants and other foodservice locations being lifted. Also, results benefited from comparisons with the year-ago period’s soft shipments, as customers then largely destocked inventories due to the sudden change in the business environment. Price/mix was backed by improved price and mix in all core segments. SG&A expenses escalated $18.9 million due to elevated incentive compensation accruals and investments to enhance the company’s manufacturing, commercial and supply-chain operations. Also, a rise in advertising and promotion expenses led to the upside. These were partly compensated by cost management initiatives. Adjusted EBITDA (including unconsolidated joint ventures) more than doubled to $166.3 million, thanks to elevated income from operations and equity method investment earnings. Sales in the Global segment jumped 19% to $509.6 million. Volumes rose 16% and price/mix increased 3%. On excluding the impact of an additional week in the year-ago period, net sales and volumes jumped 28% and 24%, respectively. Sales volume was mainly backed by demand recovery in the United States, particularly at QSRs and other large-chain restaurant customers. The company also witnessed improved aggregate shipments to customers in core international markets. Apart from these, overall sales volume growth was aided by comparison with the year-ago period’s low shipments as discussed above. Product contribution margin in the segment advanced 68% to $56.4 million. Foodservice sales soared 82% to $320 million. Price/mix and volumes jumped 18% and 64%, respectively. On excluding the impact of an additional week in the year-ago period, net sales and volumes surged a respective 94% and 74%. Sales volumes were driven by a demand revival at small and regional chain restaurants, combined with independently-owned restaurants. Shipments to non-commercial customers like lodging and hospitality, schools and universities, sports and entertainment, healthcare, and workplace environments improved year over year, though it remained below pre-pandemic levels. Apart from these, overall sales volume growth was aided by comparison with the year-ago period’s low shipments as discussed above. Shipment and order trends in the quarter under review improved in all primary sales channels as the quarter progressed, thanks to coronavirus-related curbs being relaxed and the warm weather setting in. Product contribution margin more than doubled to reach $96.3 million. In the Retail segment, sales tumbled 28% to $146.3 million. Price/mix advanced 2% but volumes plunged 30%. On excluding the impact of an additional week in the year-ago period, net sales and volumes were down 22% and 24%. Tough comparisons with the year-ago period’s demand surge due to increased at-home consumption of frozen potato products, together with reduced shipments of private-label products, affected sales volume growth. Total shipments in the quarter under review, however, remained close to pre-pandemic levels on the back of continued demand strength for the company’s premium and mainstream branded offerings. Product contribution margin slumped 32% to $21.2 million. Guidance
For fiscal 2022, management expects net sales growth to exceed its long-term goal of low-to-mid single digits. It expects first-half net sales growth to be backed by increased volumes, resulting from the ongoing demand recovery and comparisons with relatively lower shipments in the year-ago period. In the second half, net sales growth is likely to depict a balance of elevated volumes and better price/mix. This is because the recent pricing endeavors are likely to be fully implemented in the market and sales volumes in the higher-margin channels are likely to reach pre-pandemic levels.
Net income and adjusted EBITDA (including unconsolidated joint ventures) are likely to be under pressure in the first half of fiscal 2022. Management expects supply-chain volatility as well as considerable cost inflation of key production inputs, packaging and transportation from the year-ago period. Apart from these, management expects operating expenses to see pressure in the near term from continued investments in supply-chain, commercial and manufacturing operations. These investments are, however, likely to aid long-term growth and margin enhancement. That said, management expects earnings to slowly normalize in the second half of fiscal 2022, as it expects stabilized manufacturing and distribution and a better price/mix. How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -41.26% due to these changes.
At this time, Lamb Weston has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.