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Lamb Weston (LW) Gains on Pricing Action Amid Cost Inflation
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Focus on undertaking pricing efforts is favoring Lamb Weston Holdings, Inc. (LW - Free Report) . The provider of value-added frozen potato products is benefiting from strategic growth efforts, including boosting offerings and expanding capacity. However, Lamb Weston is not immune to the inflationary environment.
Let’s delve deeper.
Pricing Actions Fuel Growth
Lamb Weston’s net sales have been benefiting from robust price/mix, as witnessed during the fourth quarter of fiscal 2023. The price/mix rose 24%, reflecting gains from pricing actions in every core business unit undertaken to counter input and manufacturing cost inflation.
In the Global segment, price/mix grew 28% on gains from domestic and international pricing actions to counter inflationary pressures. In the Foodservice unit, price/mix increased 13% on pricing actions undertaken during fiscal 2023 to mitigate inflationary pressures. In the Retail business, price/mix advanced 35% on pricing actions undertaken during fiscal 2023 in branded and private label portfolios to reduce inflationary pressures. The company is building revenue growth management and execution capacity to drive growth.
Image Source: Zacks Investment Research
Capacity Expansions: Key Driver
Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. Capital expenditures amounted to $736 million during fiscal 2023 on construction costs as the company is on track with expanding its processing capacity. In its last earnings call, management highlighted that it broke ground on a 250 million-pound capacity expansion. The expansion will enhance the company’s ability to cater to the growing South American market. Management also made progress on its expansion projects across China and the Netherlands, which are expected to come online in the next 18 months.
In February 2023, Lamb Weston unveiled that it has concluded the buyout of remaining equity interests in its European joint venture with Meijer Frozen Foods B.V. The move strengthens the company’s ability to serve customers across key markets globally. The company (in July 2022) bought an additional 40% stake in Lamb Weston Alimentos Modernos S.A. ("LWAMSA") — which is its joint venture in Argentina — taking its total ownership to 90%. Lamb Weston’s efforts to boost offerings and expand capacity enable the company to meet rising demand conditions for snacks and fries.
Cost Pressure
Although Lamb Weston’s fourth-quarter fiscal 2023 gross profit increased year over year, the metric was hurt by escalated costs. Increased costs per pound and reduced sales volumes were hurdles for the metric. Increased costs per pound reflect high-single-digit cost inflation for key inputs like raw potatoes, energy, labor, edible oils, and ingredients including grains as well as starches. Further, reduced throughput at LW’s production facilities also increased costs.
In its last earnings call, management highlighted that the inflationary environment and other macro pressures on consumers continue to hamper traffic in certain restaurant channels. The company anticipates the near-term demand to be somewhat hampered owing to dynamic restaurant traffic trends and persistent macro pressures on the consumer. That said, management is on track with strategies like pricing actions and enhancing business and product mix to counter rising input cost inflation.
The Zacks Rank #3 (Hold) stock has gained 11.2% in the year-to-date period against the industry’s 5.6% decline.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked stocks, namely Post Holdings (POST - Free Report) , Utz Brands Inc. (UTZ - Free Report) and The J. M. Smucker Company (SJM - Free Report) .
Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Utz Brands, which manufactures a diverse portfolio of salty snacks, currently has a Zacks Rank #2 (Buy). UTZ’s expected EPS growth rate for three to five years is 10.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal-year sales suggests growth of 3.5% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 16.9% on average.
The J. M. Smucker, which manufactures and markets branded food and beverage products, currently carries a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 14%, on average.
The Zacks Consensus Estimate for The J. M. Smucker’s current financial-year earnings suggests growth of 6.7% from the year-ago reported figure.
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Lamb Weston (LW) Gains on Pricing Action Amid Cost Inflation
Focus on undertaking pricing efforts is favoring Lamb Weston Holdings, Inc. (LW - Free Report) . The provider of value-added frozen potato products is benefiting from strategic growth efforts, including boosting offerings and expanding capacity. However, Lamb Weston is not immune to the inflationary environment.
Let’s delve deeper.
Pricing Actions Fuel Growth
Lamb Weston’s net sales have been benefiting from robust price/mix, as witnessed during the fourth quarter of fiscal 2023. The price/mix rose 24%, reflecting gains from pricing actions in every core business unit undertaken to counter input and manufacturing cost inflation.
In the Global segment, price/mix grew 28% on gains from domestic and international pricing actions to counter inflationary pressures. In the Foodservice unit, price/mix increased 13% on pricing actions undertaken during fiscal 2023 to mitigate inflationary pressures. In the Retail business, price/mix advanced 35% on pricing actions undertaken during fiscal 2023 in branded and private label portfolios to reduce inflationary pressures. The company is building revenue growth management and execution capacity to drive growth.
Image Source: Zacks Investment Research
Capacity Expansions: Key Driver
Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. Capital expenditures amounted to $736 million during fiscal 2023 on construction costs as the company is on track with expanding its processing capacity. In its last earnings call, management highlighted that it broke ground on a 250 million-pound capacity expansion. The expansion will enhance the company’s ability to cater to the growing South American market. Management also made progress on its expansion projects across China and the Netherlands, which are expected to come online in the next 18 months.
In February 2023, Lamb Weston unveiled that it has concluded the buyout of remaining equity interests in its European joint venture with Meijer Frozen Foods B.V. The move strengthens the company’s ability to serve customers across key markets globally. The company (in July 2022) bought an additional 40% stake in Lamb Weston Alimentos Modernos S.A. ("LWAMSA") — which is its joint venture in Argentina — taking its total ownership to 90%. Lamb Weston’s efforts to boost offerings and expand capacity enable the company to meet rising demand conditions for snacks and fries.
Cost Pressure
Although Lamb Weston’s fourth-quarter fiscal 2023 gross profit increased year over year, the metric was hurt by escalated costs. Increased costs per pound and reduced sales volumes were hurdles for the metric. Increased costs per pound reflect high-single-digit cost inflation for key inputs like raw potatoes, energy, labor, edible oils, and ingredients including grains as well as starches. Further, reduced throughput at LW’s production facilities also increased costs.
In its last earnings call, management highlighted that the inflationary environment and other macro pressures on consumers continue to hamper traffic in certain restaurant channels. The company anticipates the near-term demand to be somewhat hampered owing to dynamic restaurant traffic trends and persistent macro pressures on the consumer. That said, management is on track with strategies like pricing actions and enhancing business and product mix to counter rising input cost inflation.
The Zacks Rank #3 (Hold) stock has gained 11.2% in the year-to-date period against the industry’s 5.6% decline.
Some Better-Ranked Staple Bets
Here, we have highlighted three better-ranked stocks, namely Post Holdings (POST - Free Report) , Utz Brands Inc. (UTZ - Free Report) and The J. M. Smucker Company (SJM - Free Report) .
Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Utz Brands, which manufactures a diverse portfolio of salty snacks, currently has a Zacks Rank #2 (Buy). UTZ’s expected EPS growth rate for three to five years is 10.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal-year sales suggests growth of 3.5% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 16.9% on average.
The J. M. Smucker, which manufactures and markets branded food and beverage products, currently carries a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 14%, on average.
The Zacks Consensus Estimate for The J. M. Smucker’s current financial-year earnings suggests growth of 6.7% from the year-ago reported figure.