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Lamb Weston (LW) Q3 Earnings Lag Estimates, Guidance Lowered
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Lamb Weston Holdings, Inc. (LW - Free Report) posted soft results for the third quarter of fiscal 2024, following which it lowered its guidance for the fiscal. Shares of the company declined more than 15% in the pre-market trading session on Apr 4.
The implementation of a new enterprise resource planning (ERP) system in North America had a greater-than-anticipated adverse effect on third-quarter results. The ERP transition lowered the company’s visibility of finished goods inventories placed at distribution centers temporarily, thereby hurting its capacity to fulfill customer orders. This dented sales, volumes and margins. Nonetheless, management stated that the order fulfillment rates have normalized.
However, management curtailed its guidance for fiscal 2024 due to the effect of the ERP transition and subdued near-term restaurant traffic.
Quarter in Detail
LW’s bottom line came in at $1.20 per share, which fell short of the Zacks Consensus Estimate of $1.40. Also, adjusted earnings decreased 18% year over year.
Net sales amounted to $1,458 million, up 16% year over year and included sales worth $357 million attributable to the LW EMEA buyout. The Zacks Consensus Estimate was pegged at $1,629 million.
Net sales (excluding the incremental sales attributable to the LW EMEA buyout) fell 12%. Volumes declined 16%, partly offset by the price/mix increase of 4%. The volume decline resulted from unfilled customer orders during the company's shift to a new ERP system in North America. The remaining decrease is largely due to subdued restaurant traffic patterns in North America and other key global markets, along with the ongoing impact of the company's strategic decision last year to discontinue certain lower-priced and lower-margin business lines aimed at optimizing the customer and product mix.
The adjusted gross profit increased by $24.1 million to $427 million on additional earnings from the financial results of LW EMEA and gains from pricing. However, this was partly offset by increased costs per pound. Increased costs per pound reflect mid-single-digit cost inflation for key inputs like raw potatoes, labor, energy and ingredients like grains and starches used in product coatings.
Adjusted selling, general and administrative (SG&A) expenses escalated by $30.4 million to $164.4 million.
Adjusted EBITDA declined by $8.6 million to $343.6 million.
Segment Analysis
Sales in the North America segment dropped 12% to $947.5 million. The price/mix grew 5% on the carryover benefit of pricing actions undertaken during fiscal 2023, along with the actions undertaken in fiscal 2024. Reduced customer transportation charges and adverse mix related to the ERP system somewhat offset these. Volumes fell 17%, mainly due to the unfulfilled orders stemming from the ERP transition, along with management’s efforts to exit some businesses and low restaurant traffic and retail trends. Adjusted EBITDA in the segment came in at $285.9 million, down 14%.
In the International segment, sales increased 179% to $510.8 million. The price/mix advanced 1%, and volumes jumped 178%. Volumes (excluding gains from the LW EMEA acquisition) fell 17%, mainly as a result of management’s decision to exit some businesses and unfulfilled orders catered to through exports from North America due to the ERP transition. Adjusted EBITDA in the segment came in at $101.7 million, which increased 88%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $62.3 million, long-term debt and financing obligations (excluding the current portion) of $3,175.1 million and total shareholders’ equity of $1,758.2 million.
The company generated $481.5 million as net cash from operating activities for the first three quarters of fiscal 2024, wherein capital expenditures amounted to $828.3 million. For fiscal 2024, the company expects cash to be used for capital expenditures to be $950 million.
In the reported quarter, management paid out dividends worth $40.4 million. The company did not make any share repurchases in the quarter. In the first three quarters of fiscal 2024, Lamb Weston paid dividends worth $122 million and made share buybacks of $150 million. The company has shares worth $450 million remaining under its current buyback plan.
Guidance
For fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion, including $1.1 billion of additional sales related to the consolidation of LW EMEA’s financial results for the first three quarters of the fiscal. Earlier, management projected net sales of $6.8-$7.0 billion. The lowered guidance can be accountable to the greater-than-expected effect on customer order fulfillment rates from the ERP transition in the third quarter, sluggish near-term restaurant traffic and retail trends in North America and other core international markets.
Lamb Weston expects SG&A expenses in the band of $745-$755 million. The company expects reported net income in the range of $770-$790 million compared with $830-$900 million expected earlier. Diluted earnings per share (EPS) are now envisioned in the range of $5.30-$5.45. Earlier, the metric was likely to come in the range of $5.70-$6.15.
Adjusted EBITDA is anticipated to come in the range of $1,480-$1,510 million compared with the earlier view of $1,540-$1,620 million. Management now expects adjusted net income between $800 and $820 million. Earlier, the metric was likely to be in the range of $830-$900 million. The company anticipates adjusted EPS of $5.50-$5.65 compared with the $5.70-$6.15 expected earlier.
For the fourth quarter of fiscal 2024, management envisions net sales in the band of $1.69-$1.75 billion, backed by the greater price/mix. Adjusted EBITDA is likely to come in the range of $350-$375 million in the fourth quarter. During the quarter, management expects increased net sales and adjusted gross profit to fuel earnings growth. However, adjusted SG&A of $190-$195 million is expected to have a partial negative impact.
Shares of this Zacks Rank #4 (Sell) company have declined 4.6% in the past three months compared to the industry’s 4.1% growth.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal-year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 155.4%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.6% and 35.6%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks and currently carries a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 15.8% from the year-ago reported numbers.
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Lamb Weston (LW) Q3 Earnings Lag Estimates, Guidance Lowered
Lamb Weston Holdings, Inc. (LW - Free Report) posted soft results for the third quarter of fiscal 2024, following which it lowered its guidance for the fiscal. Shares of the company declined more than 15% in the pre-market trading session on Apr 4.
The implementation of a new enterprise resource planning (ERP) system in North America had a greater-than-anticipated adverse effect on third-quarter results. The ERP transition lowered the company’s visibility of finished goods inventories placed at distribution centers temporarily, thereby hurting its capacity to fulfill customer orders. This dented sales, volumes and margins. Nonetheless, management stated that the order fulfillment rates have normalized.
However, management curtailed its guidance for fiscal 2024 due to the effect of the ERP transition and subdued near-term restaurant traffic.
Quarter in Detail
LW’s bottom line came in at $1.20 per share, which fell short of the Zacks Consensus Estimate of $1.40. Also, adjusted earnings decreased 18% year over year.
Lamb Weston Price, Consensus and EPS Surprise
Lamb Weston price-consensus-eps-surprise-chart | Lamb Weston Quote
Net sales amounted to $1,458 million, up 16% year over year and included sales worth $357 million attributable to the LW EMEA buyout. The Zacks Consensus Estimate was pegged at $1,629 million.
Net sales (excluding the incremental sales attributable to the LW EMEA buyout) fell 12%. Volumes declined 16%, partly offset by the price/mix increase of 4%. The volume decline resulted from unfilled customer orders during the company's shift to a new ERP system in North America. The remaining decrease is largely due to subdued restaurant traffic patterns in North America and other key global markets, along with the ongoing impact of the company's strategic decision last year to discontinue certain lower-priced and lower-margin business lines aimed at optimizing the customer and product mix.
The adjusted gross profit increased by $24.1 million to $427 million on additional earnings from the financial results of LW EMEA and gains from pricing. However, this was partly offset by increased costs per pound. Increased costs per pound reflect mid-single-digit cost inflation for key inputs like raw potatoes, labor, energy and ingredients like grains and starches used in product coatings.
Adjusted selling, general and administrative (SG&A) expenses escalated by $30.4 million to $164.4 million.
Adjusted EBITDA declined by $8.6 million to $343.6 million.
Segment Analysis
Sales in the North America segment dropped 12% to $947.5 million. The price/mix grew 5% on the carryover benefit of pricing actions undertaken during fiscal 2023, along with the actions undertaken in fiscal 2024. Reduced customer transportation charges and adverse mix related to the ERP system somewhat offset these. Volumes fell 17%, mainly due to the unfulfilled orders stemming from the ERP transition, along with management’s efforts to exit some businesses and low restaurant traffic and retail trends. Adjusted EBITDA in the segment came in at $285.9 million, down 14%.
In the International segment, sales increased 179% to $510.8 million. The price/mix advanced 1%, and volumes jumped 178%. Volumes (excluding gains from the LW EMEA acquisition) fell 17%, mainly as a result of management’s decision to exit some businesses and unfulfilled orders catered to through exports from North America due to the ERP transition. Adjusted EBITDA in the segment came in at $101.7 million, which increased 88%.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $62.3 million, long-term debt and financing obligations (excluding the current portion) of $3,175.1 million and total shareholders’ equity of $1,758.2 million.
The company generated $481.5 million as net cash from operating activities for the first three quarters of fiscal 2024, wherein capital expenditures amounted to $828.3 million. For fiscal 2024, the company expects cash to be used for capital expenditures to be $950 million.
In the reported quarter, management paid out dividends worth $40.4 million. The company did not make any share repurchases in the quarter. In the first three quarters of fiscal 2024, Lamb Weston paid dividends worth $122 million and made share buybacks of $150 million. The company has shares worth $450 million remaining under its current buyback plan.
Guidance
For fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion, including $1.1 billion of additional sales related to the consolidation of LW EMEA’s financial results for the first three quarters of the fiscal. Earlier, management projected net sales of $6.8-$7.0 billion. The lowered guidance can be accountable to the greater-than-expected effect on customer order fulfillment rates from the ERP transition in the third quarter, sluggish near-term restaurant traffic and retail trends in North America and other core international markets.
Lamb Weston expects SG&A expenses in the band of $745-$755 million. The company expects reported net income in the range of $770-$790 million compared with $830-$900 million expected earlier. Diluted earnings per share (EPS) are now envisioned in the range of $5.30-$5.45. Earlier, the metric was likely to come in the range of $5.70-$6.15.
Adjusted EBITDA is anticipated to come in the range of $1,480-$1,510 million compared with the earlier view of $1,540-$1,620 million. Management now expects adjusted net income between $800 and $820 million. Earlier, the metric was likely to be in the range of $830-$900 million. The company anticipates adjusted EPS of $5.50-$5.65 compared with the $5.70-$6.15 expected earlier.
For the fourth quarter of fiscal 2024, management envisions net sales in the band of $1.69-$1.75 billion, backed by the greater price/mix. Adjusted EBITDA is likely to come in the range of $350-$375 million in the fourth quarter. During the quarter, management expects increased net sales and adjusted gross profit to fuel earnings growth. However, adjusted SG&A of $190-$195 million is expected to have a partial negative impact.
Shares of this Zacks Rank #4 (Sell) company have declined 4.6% in the past three months compared to the industry’s 4.1% growth.
3 Appetizing Bets
The Chef’s Warehouse (CHEF - Free Report) , which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 3.2%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal-year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 155.4%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.6% and 35.6%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks and currently carries a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 15.8% from the year-ago reported numbers.