Lamb Weston Holdings, Inc. ( LW Quick Quote LW - Free Report) is gaining from recovery in the Foodservice business. The company’s top line is benefiting from robust price/mix, as witnessed during the third quarter of fiscal 2022. The provider of value-added frozen potato products is focused on undertaking strategic growth efforts like boosting offerings and expanding capacity. However, Lamb Weston continues to grapple with supply-chain volatility and considerable cost inflation. Let’s delve deeper. Image Source: Zacks Investment Research Foodservice Recovery & Pricing Aids Growth
Lamb Weston has been benefiting from a recovery in the Foodservice business. The trend persisted in the third quarter of fiscal 2022, with Foodservice sales soaring 34% to $294.5 million. Volumes and Price/mix increased 22% and 12%, respectively. Price/mix benefited from the favorable mix as well as product and freight pricing actions to counter inflation. Volumes benefited from the continued rebound in demand at full-service restaurants and non-commercial channels, like lodging and hospitality, healthcare, schools and universities, sports and entertainment and workplace environments.
During the quarter, Lamb Weston’s price/mix increased 12%, mainly reflecting gains from pricing actions in the company’s business segments undertaken to counter input, manufacturing and transportation cost inflation. Price/mix increased 8% in the Global segment, reflecting a favorable mix and domestic and international product and freight pricing actions to counter inflation. In the Retail segment, Price/mix advanced 12%, driven by product and freight pricing actions across the branded and private label portfolios and a favorable mix. For fiscal 2022, management expects net sales growth to exceed its long-term goal of low-to-mid single digits. The company expects fourth-quarter fiscal 2022 net sales growth to be fueled by price/mix, indicating its pricing actions to counter input and transportation cost inflation. Efforts to Boost Capacity
Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well placed to boost production capacity and fuel long-term growth. In July 2021, the company announced the expansion plan of french fry processing capacity at its existing American Falls, ID facility – with an envisioned capacity to manufacture more than 350 million pounds of frozen french fries and other potato products annually. In March 2021, the company had unveiled plans to build a new french fry processing facility in Ulanqab, Inner Mongolia, China. In the last earnings call, the company highlighted that it is on track with capacity expansion investments across Idaho and China which will keep it well-positioned to support rising customer demand in the long term. In an earlier development, Lamb Weston completed the expansion of a facility located at Hermiston, Oregon, on Jun 18, 2019. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries.
Is All Rosy for Lamb Weston?
Although Lamb Weston’s third-quarter fiscal 2022 gross profit slightly increased year over year, the metric was hurt by escalated costs. Escalated manufacturing and distribution costs on a per pound basis and reduced sales volumes were a concern for the metric. In its last earnings call, management highlighted that net income and adjusted EBITDA (including unconsolidated joint ventures) are likely to be under pressure in the fourth quarter of fiscal 2022. The company continues to navigate through major inflation for key production inputs, transportation and packaging. Also, industry-wide operational challenges like labor and commodity shortages might be a concern. It also expects raw potato costs on a per pound basis to increase.
That said, the aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company stay afloat amid such hurdles. LW’s stock has gained 20.8% in the past six months compared with the industry’s growth of 1.4%. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here 3 Solid Food Stocks
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Pilgrim’s Pride ( PPC Quick Quote PPC - Free Report) , Sysco Corporation ( SYY Quick Quote SYY - Free Report) and Medifast ( MED Quick Quote MED - Free Report) . Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1. PPC has a trailing four-quarter earnings surprise of 31.4%, on average. The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year earnings per share (EPS) suggests growth of almost 43% from the year-ago reported number. Sysco, which markets and distributes various food and related products, carries a Zacks Rank #2 (Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average. The Zacks Consensus Estimate for Sysco’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number. Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2. MED has a trailing four-quarter earnings surprise of 12.9%, on average. The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of almost 19% and 11.5%, respectively, from the year-ago reported figure.