Back to top

Rising Expenses Makes Lamb Weston (LW) an Unappetizing Pick

Read MoreHide Full Article

Lamb Weston (LW - Free Report) is sailing on rough seas, thanks to rising costs and challenges in the European region. Well, this Zacks Rank #4 (Sell) stock lost nearly 13% in the past three months, against the industry’s rise of 6.1%. Let’s take a look at the factors affecting the company.

High Costs are a Concern

Lamb Weston’s SG&A expenses have been rising since the past few quarters. In third-quarter fiscal 2019, adjusted SG&A expenses increased $8.2 million due to escalated IT and infrastructure-related costs as well as greater sales and marketing investments. Moreover, advertising and promotional costs grew year over year.

For fiscal 2019, management expects SG&A costs to increase considerably due to planned investments to support upgrade of information systems and enterprise resource planning infrastructure. Also, higher SG&A cost expectations include the company’s plans to invest more toward enhancing innovations, sales, marketing and other functional capabilities to augment operating efficiencies and fuel growth. These factors may exert pressure on the bottom line.

Additionally, the company expects transportation, input and manufacturing costs to increase in fiscal 2019. It expects cost of potatoes to remain high in the fourth quarter.



Headwinds in Europe

Lamb Weston anticipates the operating environment in Europe to be uncertain in fiscal 2019 and in the first half of fiscal 2020, thanks to a poor potato crop. As crops in Europe are highly dependent on rainfall, drought conditions during the months of July and August are likely to impact yield and quality. Consequently, potato prices have increased. The company projects prices to stay high for its Lamb Weston/Meijer European joint venture and the industry throughout fiscal 2019. Also, the impacts are expected to linger in the first half of fiscal 2020.

Wrapping Up

We note that Lamb Weston is progressing well with capital expansions, strengthening of commercial and supply-chain networks as well as innovations. We expect such upsides to revive the stock in the forthcoming periods.  

Interested in Consumer Staples Stocks? Check These

Estee Lauder (EL - Free Report) , with long-term earnings per share (EPS) growth rate of 13%, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup (CPB - Free Report) has a long-term EPS growth rate of 6% and currently holds a Zacks Rank #2 (Buy).

General Mills (GIS - Free Report) , also with a Zacks Rank #2, has long-term EPS growth rate of 7%.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>