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Lamb Weston (LW) Q2 Earnings & Sales Likely to Increase Y/Y

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Lamb Weston Holdings, Inc. (LW - Free Report) is slated to release second-quarter fiscal 2019 results on Jan 4, 2019. This provider of frozen potato products flaunts a splendid surprise history. Notably, the company has outperformed both earnings and sales estimates ever since its spin-off from Conagra Brands (CAG - Free Report) . Let’s see how things are shaping up ahead of this earnings release.

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at 70 cents, which reflects close to 30% growth from the year-ago quarter’s figure. Further, the consensus mark for revenues is $895 million, reflecting 8.5% improvement from revenues reported in the year-ago quarter.

Factors Impacting the Quarter

Lamb Weston’s sales have been increasing year over year for quite some time now. In the quarter to be reported, the company is likely to continue benefitting from focus on limited time offers or LTO innovations, which form key part in the company’s long-term prospects.  Incidentally, LTOs helped drive growth and market share gains in fiscal 2018. Management remains positive about further prospects from new LTOs, as it expects the company’s new French Fries line to provide more flexibility to enter into tie-ups with customers and boost traffic.

Also, Lamb Weston’s robust price/mix bodes well. The company has been benefitting 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. Management expects strong price/mix in the first half of fiscal 2019, which also gives out positive signals for the quarter to be reported.

Strength in the Global segment is another driving factor for Lamb Weston. Notably, this unit accounted for nearly half of the company’s sales in the last reported quarter, and gained from better price/mix and higher volumes. Strength in pricing at this segment is likely to remain a tailwind to Lamb Weston’s sales growth in fiscal 2019.

We note that in the last reported quarter, Lamb Weston’s gross margin was hit by increased transportation and warehousing expenses, input and production cost inflation, and increased depreciation costs related to the company’s new french fry production line in Richard. Management expects these hurdles to linger in fiscal 2019. Incidentally, total production cost per pound (including potatoes) is expected to rise mid-single digit in the fiscal, raising concerns for the quarter to be reported. In fact, we note that many other food companies like Campbell Soup (CPB - Free Report) and General Mills (GIS - Free Report) , among others, have been bearing the brunt of input cost inflation.

Though these hurdles and increased SG&A expenses may pose as headwinds in the second quarter, Lamb Weston is focused on countering cost hurdles through capacity expansion and efforts to drive sales.

What the Zacks Model Unveils

Our proven model doesn’t show that Lamb Weston is likely to beat bottom-line estimates this quarter.  For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Lamb Weston carries a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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