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Lamb Weston (LW) Stock Up More Than 15% YTD: Here's Why

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Lamb Weston Holdings, Inc. (LW - Free Report) is gaining from strength in its strategic growth efforts like boosting offerings and expanding capacity. The provider of value-added frozen potato products is benefiting from robust foodservice recovery. The company is also gaining from its effective pricing efforts. These upsides were seen in its third-quarter fiscal 2022 results, with the top and the bottom line increasing year over year.

The Zacks Consensus Estimate for Lamb Weston’s upcoming fiscal fourth-quarter sales and earnings per share (EPS) suggests growth of 6% and 15.9%, respectively, from the year-ago quarter’s reported figures.

The Zacks Rank #1(Strong Buy) stock has gained 16.7% so far this year against the industry’s 2.8% decline. The stock has comfortably outperformed the Zacks Consumer Staples sector’s 0.9% drop in the period.

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Pricing Actions Fuel Growth

During third-quarter fiscal 2022, Lamb Weston’s price/mix increased 12%, mainly reflecting gains from pricing actions in the company’s business segments 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 by 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.

Foodservice Recovery Bodes Well

Lamb Weston is 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. The unit’s volumes and price/mix increased by 22% and 12%, respectively. Price/mix benefited from the favorable mix and 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.

Efforts to Boost Capacity

Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well placed to boost production capacity and long-term growth. Lamb Weston’s efforts to boost offerings and expand capacity enable the company to meet rising demand conditions for snacks and fries effectively. In July 2021, the company announced the expansion plan of french fry processing capacity at its existing American Falls, ID facility – with an envisioned ability to manufacture more than 350 million pounds of frozen french fries and other potato products annually. In March 2021, the company 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, OR, on Jun 18, 2019. The expansion facilitated the addition of a new processing line for increasing the production of frozen french fries.

We believe that such well-chalked expansion endeavors and the aforementioned upsides will likely help LW stay in investors’ good books.

Better-Ranked Staple Stocks

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , Medifast (MED - Free Report) and Campbell Soup (CPB - Free Report) .

Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2. SYY has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings per share (EPS) suggests growth of 32.5% 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 13.4%, respectively, from the year-ago reported figure.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2. Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financial year sales suggests growth of 0.5% from the year-ago reported figure.


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