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Lamb Weston (LW) Down 4.2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lamb Weston due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lamb Weston Q4 Earnings & Sales Beat Estimates
Lamb Weston Holdings posted fourth-quarter fiscal 2018 results, wherein quarterly adjusted earnings of 65 cents crushed the Zacks Consensus Estimate of 62 cents and surged 27.5% year over year.
This includes a benefit of about 10 cents from lower tax rate, stemming from tax reforms. Also, bottom-line growth was backed by higher operating income and equity method investment earnings. Notably, effective tax rate was 21.5% this quarter, down from 34.4% in the same period last year.
Net sales advanced 10% to $918.2 million, which also surpassed the consensus mark of $887 million. The top line was fueled by improved price/mix (which stemmed from pricing strategies), better products and customer mix. Moreover, volumes grew 2%, courtesy of strength noted across all core segments.
Gross profit increased almost 18% to $232.7 million, as improved price mix, greater volumes and supply-chain efficiency savings compensated for increased transportation and warehousing expenses, input and production cost inflation, escalated incentive compensation expenses, and increased depreciation costs related to the company’s new production line in Richard. In fact, increased transportation and warehousing expenses, and input and production cost inflation posed hurdles across all company segments.
SG&A expenses increased almost 32% to $99.2 million on account of elevated labor and infrastructure costs associated with operating as a stand-alone company. Also, higher advertising and promotional investments along with greater incentive compensation costs led to the upside.
Adjusted EBITDA (including unconsolidated JVs) surged 15% to $202.5 million, driven by higher operating income and equity method investment earnings.
Segment Analysis
Sales at the Global segment jumped 10% to $464.7 million, thanks to better price/mix and higher volumes. Volumes gained from strong sales to strategic consumers in North America, while price/mix was fueled by better pricing, and favorable customer and product mix. Product contribution margin at the segment increased 21% to $99.7 million.
Foodservice sales jumped 6% to $293.3 million. Improved price/mix (driven by same factors as the Global segment) and a nominal rise in volumes drove sales. Product contribution margin jumped 6% to $93.7 million.
At the Retail segment, sales soared 26% to $125 million. Volumes at the segment surged, owing to solid distribution gains of Grown in Idaho, among other branded products, along with improvements in private label products. Price/mix improvement also drove sales. Product contribution margin was up 47% at $21.3 million.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $55.6 million, long-term debt (excluding current portion) of $2,336.7 million and total shareholders’ deficit of $334.8 million.
The company generated $481.2 million as net cash from operating activities during fiscal 2018. Also, capital expenditures for the year totaled roughly $309 million, reflecting an increase of $21.6 million. This was accountable to the completion of the construction of a new production line in Richland, WA, while Lamb Weston also started the construction of a new production line in Hermiston, OR. Management expects its Hermiston facility to start operating in May 2019.
Further, the company paid out dividends worth $110.2 million during fiscal 2018.
During the fourth quarter, adjusted equity method investment earnings from unconsolidated joint ventures in the United States and Europe increased nearly $7.7 million on the back of strong operating results in these regions. This, in turn, was a result of reduced raw potato costs in Europe, greater volumes and favorable currency movements, partly countered by lower price/mix in Europe.
Guidance
Following a solid fiscal 2018, management remains encouraged about witnessing another year of solid sales and earnings growth in fiscal 2019. The company remains focused on its strategic growth initiatives by making constant investments in enhancing capacity, improving customer services, undertaking innovations and boosting limited time offerings. Further, the company expects the operating environment to remain favorable in fiscal 2019, wherein it also expects continued robust global demand growth for frozen potato products. Also, Lamb Weston expects processing capacity utilization levels in North America to be strong.
All said, the company expects higher price/mix and volumes to drive top-line growth. Also, the company expects to counter input, manufacturing and distribution cost inflation, thereby delivering earnings growth. In fiscal 2019, management expects net sales to increase in mid-single digits, on the back of strong price/mix in the first half of fiscal 2019.
Adjusted EBITDA (including unconsolidated joint ventures) is expected to come in a band of $860-$870 million. While gross margin is expected to at least be in line with net sales, SG&A costs are anticipated to rise considerably. SG&A costs are likely to increase due to planned investments undertaken to support upgrade of information systems and enterprise resource planning infrastructure. Also, the company plans to invest more toward enhancing innovations, sales, marketing and other functional capabilities, in order to augment operating efficiencies and fuel growth.
Interest costs are projected to be $110 million, while total depreciation and amortization costs are expected to be around $150 million. Management projects adjusted effective tax rate to be nearly 24%, while it plans to use cash of $360 million for capital expenditures.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.75% due to these changes.
VGM Scores
At this time, Lamb Weston has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable soley for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Lamb Weston (LW) Down 4.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lamb Weston due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lamb Weston Q4 Earnings & Sales Beat Estimates
Lamb Weston Holdings posted fourth-quarter fiscal 2018 results, wherein quarterly adjusted earnings of 65 cents crushed the Zacks Consensus Estimate of 62 cents and surged 27.5% year over year.
This includes a benefit of about 10 cents from lower tax rate, stemming from tax reforms. Also, bottom-line growth was backed by higher operating income and equity method investment earnings. Notably, effective tax rate was 21.5% this quarter, down from 34.4% in the same period last year.
Net sales advanced 10% to $918.2 million, which also surpassed the consensus mark of $887 million. The top line was fueled by improved price/mix (which stemmed from pricing strategies), better products and customer mix. Moreover, volumes grew 2%, courtesy of strength noted across all core segments.
Gross profit increased almost 18% to $232.7 million, as improved price mix, greater volumes and supply-chain efficiency savings compensated for increased transportation and warehousing expenses, input and production cost inflation, escalated incentive compensation expenses, and increased depreciation costs related to the company’s new production line in Richard. In fact, increased transportation and warehousing expenses, and input and production cost inflation posed hurdles across all company segments.
SG&A expenses increased almost 32% to $99.2 million on account of elevated labor and infrastructure costs associated with operating as a stand-alone company. Also, higher advertising and promotional investments along with greater incentive compensation costs led to the upside.
Adjusted EBITDA (including unconsolidated JVs) surged 15% to $202.5 million, driven by higher operating income and equity method investment earnings.
Segment Analysis
Sales at the Global segment jumped 10% to $464.7 million, thanks to better price/mix and higher volumes. Volumes gained from strong sales to strategic consumers in North America, while price/mix was fueled by better pricing, and favorable customer and product mix. Product contribution margin at the segment increased 21% to $99.7 million.
Foodservice sales jumped 6% to $293.3 million. Improved price/mix (driven by same factors as the Global segment) and a nominal rise in volumes drove sales. Product contribution margin jumped 6% to $93.7 million.
At the Retail segment, sales soared 26% to $125 million. Volumes at the segment surged, owing to solid distribution gains of Grown in Idaho, among other branded products, along with improvements in private label products. Price/mix improvement also drove sales. Product contribution margin was up 47% at $21.3 million.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $55.6 million, long-term debt (excluding current portion) of $2,336.7 million and total shareholders’ deficit of $334.8 million.
The company generated $481.2 million as net cash from operating activities during fiscal 2018. Also, capital expenditures for the year totaled roughly $309 million, reflecting an increase of $21.6 million. This was accountable to the completion of the construction of a new production line in Richland, WA, while Lamb Weston also started the construction of a new production line in Hermiston, OR. Management expects its Hermiston facility to start operating in May 2019.
Further, the company paid out dividends worth $110.2 million during fiscal 2018.
During the fourth quarter, adjusted equity method investment earnings from unconsolidated joint ventures in the United States and Europe increased nearly $7.7 million on the back of strong operating results in these regions. This, in turn, was a result of reduced raw potato costs in Europe, greater volumes and favorable currency movements, partly countered by lower price/mix in Europe.
Guidance
Following a solid fiscal 2018, management remains encouraged about witnessing another year of solid sales and earnings growth in fiscal 2019. The company remains focused on its strategic growth initiatives by making constant investments in enhancing capacity, improving customer services, undertaking innovations and boosting limited time offerings. Further, the company expects the operating environment to remain favorable in fiscal 2019, wherein it also expects continued robust global demand growth for frozen potato products. Also, Lamb Weston expects processing capacity utilization levels in North America to be strong.
All said, the company expects higher price/mix and volumes to drive top-line growth. Also, the company expects to counter input, manufacturing and distribution cost inflation, thereby delivering earnings growth. In fiscal 2019, management expects net sales to increase in mid-single digits, on the back of strong price/mix in the first half of fiscal 2019.
Adjusted EBITDA (including unconsolidated joint ventures) is expected to come in a band of $860-$870 million. While gross margin is expected to at least be in line with net sales, SG&A costs are anticipated to rise considerably. SG&A costs are likely to increase due to planned investments undertaken to support upgrade of information systems and enterprise resource planning infrastructure. Also, the company plans to invest more toward enhancing innovations, sales, marketing and other functional capabilities, in order to augment operating efficiencies and fuel growth.
Interest costs are projected to be $110 million, while total depreciation and amortization costs are expected to be around $150 million. Management projects adjusted effective tax rate to be nearly 24%, while it plans to use cash of $360 million for capital expenditures.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.75% due to these changes.
VGM Scores
At this time, Lamb Weston has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable soley for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.