Lamb Weston Holdings, Inc. (LW - Free Report) has seen its shares rally as much as 45.4% this year, against the industry’s decline of 9.6%. The company has been gaining from its stellar past record, which was retained in the first quarter of fiscal 2019. In fact, management’s encouraging view for the fiscal further added to investors’ optimism.
That said, let’s delve deeper into the factors that have been driving this Zacks Rank #2 (Buy) stock’s growth story.
Strong Global Unit
Global segment accounted for nearly half of Lamb Weston’s first-quarter sales and is a major driver for the future. Sales at this segment rose 13% to $466.8 million, thanks to better price/mix and higher volumes. The increase in volumes was due to strong sales to strategic consumers in the United States and core international regions, and gains from limited time product offerings (LTOs). Price/mix was fueled by ongoing impacts of pricing actions undertaken last year, and favorable customer and product mix. Strength in pricing at this segment is likely to remain a tailwind to Lamb Weston’s sales growth in fiscal 2019.
Strength in LTOs
Lamb Weston’s sales have been increasing year over year ever since it completed a fiscal, post its spin-off from Conagra Brands (CAG - Free Report) . The company has been largely benefitting from its limited time offers or LTO innovations, which form a key part in the company’s long-term prospects. Incidentally, LTOs helped drive growth and market share gains in fiscal 2018. Also, in the first quarter of fiscal 2019, LTOs accounted for significant volume growth in the Global segment in particular. Management is positive about further prospects from new LTOs, as it expects the company’s new French Fries line to provide it more flexibility to enter into tie-ups with customers and boost traffic.
Lamb Weston’s top line has been gaining from robust price/mix, which drove sales across all segments in the first quarter. Notably, Lamb Weston’s sales grew on the back of an 8% rise in price/mix. This was backed by gains from various new pricing structures related to recently renewed deals in the Global unit, and continued impacts of pricing and mix enhancement initiatives undertaken in the Retail and Foodservice units. In fact, price/mix rose 8% and 13%, respectively, in the Global and Retail units, while at foodservice it increased 7%. Management expects strong price/mix in the first half of fiscal 2019, which is likely to augment sales growth.
Stellar Q1 & Encouraging Outlook
Driven by such upsides, Lamb Weston delivered robust first-quarter fiscal 2019 results, wherein both top and bottom lines grew year over year and beat the Zacks Consensus Estimate for the eighth straight time. While earnings gained from lower tax rate and higher operating income, sales were backed by better price mix, improved products and customer mix, and higher volumes. The solid results reflect the success of Lamb Weston’s capital expansions, strength of its commercial and supply-chain networks, and focus on innovations.
Markedly, the company expects the operating environment to remain favorable in the remainder of fiscal 2019. It also expects continued robust demand for frozen potato products and a tight production capacity in the fiscal year. Though management anticipates to face hurdles like a poor potato crop at its European joint venture, Lamb Weston/Meijer, it expects to offset these challenges with solid pricing and cost-saving initiatives along with opportunities in its North American and export ventures. All said, the company expects net sales to increase mid-single digits on the back of strong price/mix in the first half of the fiscal.
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