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Strategic Pricing Actions Aid Lamb Weston (LW), High Costs Ail
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Lamb Weston Holdings, Inc. (LW - Free Report) has been benefiting from focus strategic pricing efforts. The provider of value-added frozen potato products is benefiting from strategic growth efforts, including boosting offerings and expanding capacity.
However, the persistent inflationary environment and other macro pressures on consumers continue to hamper its performance. In addition, lower volumes are a concern for Lamb Weston.
Let’s discuss this in detail.
Factors Working Well for Lamb Weston
Lamb Weston’s net sales have benefited 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 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
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 to expand 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 stated that it made progress on its expansion projects across China and the Netherlands, which are expected to come online in the next 18 months.
High Costs: A Concern
Although Lamb Weston’s quarterly gross profit increased year over year in the fiscal fourth quarter, 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 critical inputs like raw potatoes, energy, labor, edible oils, and ingredients, including grains and 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.
Lower Volumes Hurt
In the fiscal fourth quarter, Lamb Weston’s volume fell 10%, reflecting its efforts to exit some lower-priced and lower-margin businesses. Soft demand owing to a slowdown in casual and full-service restaurant traffic, inventory destocking by some customers across international markets and specific U.S. retail channels also led to the downside. Volume in the Global, Foodservice and Retail segment fell 11%, 9% and 10%, respectively.
That being said, focusing on strategic pricing and expansion efforts will likely aid growth amid such headwinds. The Zacks Rank #3 (Hold) stock has gained 9% in the year-to-date period against the industry’s 7.8% decline.
Some Solid Staple Bets
MGP Ingredients (MGPI - Free Report) , which produces and markets ingredients and distillery products, currently sports a Zacks Rank #1 (Strong Buy). MGPI has a trailing four-quarter earnings surprise of 18% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings per share suggests growth of 5.8% and 10.4%, respectively, from the corresponding year-ago reported figures.
Flowers Foods (FLO - Free Report) emphasizes providing high-quality baked items. The company currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 2.3%.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales suggests growth of 6.7% from the year-ago period’s actuals. FLO has a trailing four-quarter earnings surprise of 7.6% on average.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks, carrying a Zacks Rank #2. UTZ’s expected EPS growth rate for three to five years is 11.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal year sales suggests growth of 3.7% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 12.3% on average.
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Strategic Pricing Actions Aid Lamb Weston (LW), High Costs Ail
Lamb Weston Holdings, Inc. (LW - Free Report) has been benefiting from focus strategic pricing efforts. The provider of value-added frozen potato products is benefiting from strategic growth efforts, including boosting offerings and expanding capacity.
However, the persistent inflationary environment and other macro pressures on consumers continue to hamper its performance. In addition, lower volumes are a concern for Lamb Weston.
Let’s discuss this in detail.
Factors Working Well for Lamb Weston
Lamb Weston’s net sales have benefited 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 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
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 to expand 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 stated that it made progress on its expansion projects across China and the Netherlands, which are expected to come online in the next 18 months.
High Costs: A Concern
Although Lamb Weston’s quarterly gross profit increased year over year in the fiscal fourth quarter, 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 critical inputs like raw potatoes, energy, labor, edible oils, and ingredients, including grains and 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.
Lower Volumes Hurt
In the fiscal fourth quarter, Lamb Weston’s volume fell 10%, reflecting its efforts to exit some lower-priced and lower-margin businesses. Soft demand owing to a slowdown in casual and full-service restaurant traffic, inventory destocking by some customers across international markets and specific U.S. retail channels also led to the downside. Volume in the Global, Foodservice and Retail segment fell 11%, 9% and 10%, respectively.
That being said, focusing on strategic pricing and expansion efforts will likely aid growth amid such headwinds. The Zacks Rank #3 (Hold) stock has gained 9% in the year-to-date period against the industry’s 7.8% decline.
Some Solid Staple Bets
MGP Ingredients (MGPI - Free Report) , which produces and markets ingredients and distillery products, currently sports a Zacks Rank #1 (Strong Buy). MGPI has a trailing four-quarter earnings surprise of 18% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and earnings per share suggests growth of 5.8% and 10.4%, respectively, from the corresponding year-ago reported figures.
Flowers Foods (FLO - Free Report) emphasizes providing high-quality baked items. The company currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 2.3%.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales suggests growth of 6.7% from the year-ago period’s actuals. FLO has a trailing four-quarter earnings surprise of 7.6% on average.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks, carrying a Zacks Rank #2. UTZ’s expected EPS growth rate for three to five years is 11.4%.
The Zacks Consensus Estimate for Utz Brands’ current fiscal year sales suggests growth of 3.7% from the year-ago reported numbers. UTZ has a trailing four-quarter earnings surprise of 12.3% on average.