A month has gone by since the last earnings report for Lamb Weston (LW Quick QuoteLW - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lamb Weston due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lamb Weston Q1 Earnings Top Estimates, Sales Rise Y/Y

Lamb Weston posted first-quarter fiscal 2023 bottom line of 75 cents per share, which surpassed the Zacks Consensus Estimate of 52 cents. Earnings surged 317% year over year. The upside can be contributed to higher income from operations.

Net sales amounted to $1,125.6 million, up 14% year over year. The price/mix increased 19%, reflecting gains from pricing actions in the company’s core business segments undertaken to counter input, manufacturing and transportation cost inflation. Volumes fell 5% mainly due to lower casual dining and full-service restaurant traffic in the United States. In addition, the timing of shipments to large chain restaurant customers was a headwind. Lamb Weston’s shipments into foodservice and retail channels across the United States continued to be adversely impacted by its inability to fully serve customer demand stemming from widespread industry supply chain restrictions, like labor and commodities shortages. The top line missed the Zacks Consensus Estimate of $1,141.3 million.

Gross profit came in at $273.3 million, up $122 million, driven by the favorable price/mix and productivity initiatives. Increased manufacturing and distribution costs on a per pound basis and reduced sales volumes were a concern for the metric. The higher costs per pound mainly reflect double-digit cost inflation for key inputs like edible oils, ingredients namely grains and starches utilized for product coatings, labor costs and transportation expenses. Higher costs per pound also reflect increased costs related to the impact of extreme summer heat, which adversely impacted the yield and quality of potato crops in the Pacific Northwest during the fall of 2021. In addition, impacts from labor and commodities shortages on production run-rates were headwinds. SG&A expenses escalated by $25.2 million to $116.3 million mainly due to increased compensation and benefits expense and greater expenses associated with improving its information and technology services infrastructure. Adjusted EBITDA (including unconsolidated joint ventures) jumped 92% to $227.8 million, courtesy of increased income from operations.

Segment Analysis

Sales in the Global segment increased 12% to $559.7 million. Volumes fell 2% while price/mix increased 14%. The price/mix benefited from the positive mix as well as domestic and international product and freight pricing actions undertaken to counter inflation. The timing of shipments to large QSR chain customers across the United States led to a decline in volumes. The product contribution margin in the segment jumped 96% to $83.7 million.

Foodservice sales increased 14% to $366.3 million. Volumes decreased 12%, and the price/mix jumped 26%. Favorable price/mix reflects carryover gains of product and freight pricing actions to mitigate inflation. The company witnessed soft demand in the segment’s restaurant and non-commercial channels, including lodging and hospitality, healthcare, schools and universities among others. It also saw lower restaurant traffic stemming from inflationary pressures on consumer discretionary spending. The product contribution margin increased 43% to reach $138.2 million.

In the Retail segment, sales went up 28% to $169.6 million. The price/mix advanced 32%, but volumes declined 4%. The price/mix benefited from the carryover impact of pricing actions in the branded and private label portfolios undertaken to counter inflation. The lower shipments of private label products hurt the sales volume. The product contribution margin surged 229% to $48.7 million.

Other Financial Details

Lamb Weston ended the quarter with cash and cash equivalents of $485.3 million, long-term debt and financing obligations (excluding the current portion) of $2,700.1 million and total shareholders’ equity of $510 million. The company generated $192.1 million as net cash from operating activities for the 13 weeks ended Aug 28, 2022. Capital expenditures (including IT expenditure) amounted to $121.2 million during this time. For fiscal 2023, the company expects cash used for capital expenditures in the band of $475-$525 million. During the reported quarter, management paid out dividends worth $35.3 million and bought back shares worth $28.4 million, thereby returning $63.7 million to its shareholders.

Guidance

For fiscal 2023, management expects net sales growth in the band of $4.7-$4.8 billion. Net sales growth is likely to be backed by pricing actions to counter the significant input and transportation cost inflation. Also, an improved mix is likely to drive growth. Lamb Weston expects SG&A expenses in the band of $475-$500 million, indicating greater investments to upgrade information systems and enterprise resource planning infrastructure, together with escalated compensation and benefit costs. Adjusted EBITDA (including unconsolidated joint ventures) is likely to come in the range of $840-$910 million. Adjusted net income is anticipated in the range of $360-$410 million. Adjusted diluted EPS are envisioned in the band of $2.45-$2.85. Management expects interest expenses of approximately $115 million for fiscal 2023 and an effective tax rate of nearly 24%. Further, it anticipates depreciation and amortization expenses of roughly $210 million. Management expects the gross margin to remain under pressure in the first half of fiscal 2023 due to considerable inflation for key production inputs, transportation and packaging, and rising raw potato costs on a per-pound basis. The gross margin is also likely to bear the adverse impacts of supply-chain hurdles, resulting in operational bottlenecks like labor and commodities shortages. That said, the gross margin is expected to improve and reach normalized annual levels of 25-26% in the second half of the fiscal.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 5.57% due to these changes.

VGM Scores

Currently, Lamb Weston has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lamb Weston has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Lamb Weston belongs to the Zacks Food - Miscellaneous industry. Another stock from the same industry, United Natural Foods (UNFI Quick QuoteUNFI - Free Report) , has gained 20% over the past month. More than a month has passed since the company reported results for the quarter ended July 2022.

United Natural reported revenues of $7.27 billion in the last reported quarter, representing a year-over-year change of +8%. EPS of $1.27 for the same period compares with $1.18 a year ago.

United Natural is expected to post earnings of $1.14 per share for the current quarter, representing a year-over-year change of +17.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for United Natural. Also, the stock has a VGM Score of A.