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Lamb Weston (LW) Down More Than 25% in 3 Months: Here's Why
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Lamb Weston Holdings, Inc. (LW - Free Report) appears in a tight spot thanks to rising expenses. The provider of value-added frozen potato products is battling input cost inflation, which is putting pressure on its margins. Subdued near-term restaurant traffic continues to hurt the company’s volumes. Unimpressively, Lamb Weston came out with soft results for the third quarter of fiscal 2024, following which it lowered its guidance for the fiscal.
The Zacks Rank #5 (Strong Sell) company’s shares have slumped 26.4% in the past three months compared with the industry’s 1% decline. The stock underperformed the Zacks Consumer Staple sector’s drop of 1.7% during this time.
Let’s delve deeper.
Image Source: Zacks Investment Research
High Costs a Hurdle
Lamb Weston is witnessing increased selling, general & administrative (SG&A) expenses. The trend persisted in third-quarter fiscal 2024, with adjusted SG&A expenses escalating by $30.4 million to $164.4 million. The downside was primarily caused by incremental SG&A costs due to the consolidation of EMEA and increased expenses related to the enterprise resource planning system or ERP system transition, including non-cash amortization.
Although the company’s fiscal third-quarter adjusted gross profit increased year over year, it was hurt to some extent 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.
Volume-Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in the third quarter of fiscal 2024. Volumes declined 16%, due to unfilled orders during an enterprise resource planning or ERP system shift, soft restaurant traffic and discontinued business lines. We believe that traffic trends continue to remain challenging as consumers are still adapting to higher menu prices. North America and International unit volumes fell 17% each in the fiscal third quarter.
In the fiscal fourth quarter, management anticipates a volume decline of mid-single digits. The downside can be attributed to expectations of soft restaurant traffic trends across North America. In addition, restaurant traffic trends in various key international markets are also softer than anticipated. Also, volumes are likely to be affected by the ERP transition impacting some customers in North America.
Lowered View
Lamb Weston recently curtailed its guidance for fiscal 2024 thanks to a cautious view of the consumer. For the fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion. Earlier, the company projected net sales of $6.8-$7.0 billion. The company anticipates fiscal 2024 adjusted EPS of $5.50-$5.65 compared with $5.70-$6.15 expected earlier.
Final Thoughts
Lamb Weston’s favorable pricing environment has been offering respite. The company’s focus on improving supply chain productivity and expansions is noteworthy. However, whether these factors can help Lamb Weston stay afloat amid hurdles is yet to be seen.
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 18.7% and 30.5%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse portfolio of salty snacks, 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 19.3% from the year-ago reported numbers.
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Lamb Weston (LW) Down More Than 25% in 3 Months: Here's Why
Lamb Weston Holdings, Inc. (LW - Free Report) appears in a tight spot thanks to rising expenses. The provider of value-added frozen potato products is battling input cost inflation, which is putting pressure on its margins. Subdued near-term restaurant traffic continues to hurt the company’s volumes. Unimpressively, Lamb Weston came out with soft results for the third quarter of fiscal 2024, following which it lowered its guidance for the fiscal.
The Zacks Rank #5 (Strong Sell) company’s shares have slumped 26.4% in the past three months compared with the industry’s 1% decline. The stock underperformed the Zacks Consumer Staple sector’s drop of 1.7% during this time.
Let’s delve deeper.
Image Source: Zacks Investment Research
High Costs a Hurdle
Lamb Weston is witnessing increased selling, general & administrative (SG&A) expenses. The trend persisted in third-quarter fiscal 2024, with adjusted SG&A expenses escalating by $30.4 million to $164.4 million. The downside was primarily caused by incremental SG&A costs due to the consolidation of EMEA and increased expenses related to the enterprise resource planning system or ERP system transition, including non-cash amortization.
Although the company’s fiscal third-quarter adjusted gross profit increased year over year, it was hurt to some extent 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.
Volume-Related Concerns
Lamb Weston continues to witness lower volumes, as witnessed in the third quarter of fiscal 2024. Volumes declined 16%, due to unfilled orders during an enterprise resource planning or ERP system shift, soft restaurant traffic and discontinued business lines. We believe that traffic trends continue to remain challenging as consumers are still adapting to higher menu prices. North America and International unit volumes fell 17% each in the fiscal third quarter.
In the fiscal fourth quarter, management anticipates a volume decline of mid-single digits. The downside can be attributed to expectations of soft restaurant traffic trends across North America. In addition, restaurant traffic trends in various key international markets are also softer than anticipated. Also, volumes are likely to be affected by the ERP transition impacting some customers in North America.
Lowered View
Lamb Weston recently curtailed its guidance for fiscal 2024 thanks to a cautious view of the consumer. For the fiscal 2024, management expects net sales in the range of $6.54-$6.60 billion. Earlier, the company projected net sales of $6.8-$7.0 billion. The company anticipates fiscal 2024 adjusted EPS of $5.50-$5.65 compared with $5.70-$6.15 expected earlier.
Final Thoughts
Lamb Weston’s favorable pricing environment has been offering respite. The company’s focus on improving supply chain productivity and expansions is noteworthy. However, whether these factors can help Lamb Weston stay afloat amid hurdles is yet to be seen.
Better-Ranked Staple Stocks
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 (Strong Buy) Rank 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 18.7% and 30.5%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse portfolio of salty snacks, 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 19.3% from the year-ago reported numbers.