Lamb Weston Holdings, Inc. (LW - Free Report) announced that it has completed the expansion of the facility located at Hermiston, OR. This is in sync with the company’s efforts to boost supply-chain network. Let’s take a closer look at the latest move and other aspects.
Prudent Efforts to Strengthen Business
In 2017, the company had announced investments of roughly $250 million for the expansion of the Oregon facility. The company joined hands with a number of organizations and officials for the completion of this plan.
Through this endeavor, the company has been able to add a new processing line for expanding the production of frozen french fries. Accordingly, the company’s french fries production is likely to increase nearly 300 million pounds annually. The products manufactured in the facility will be sold in the United States as well as in other international regions.
Management states that through such endeavors, the company will be able to successfully meet the rising demand for french fries. Apart from capacity expansion, the company is striving toward strengthening commercial networks and bolstering portfolio through innovations.
In addition to strategies to enhance product offerings, the company also resorts to limited time offers or LTO innovations to broaden revenue prospects. Incidentally, LTOs helped drive growth and market share gains in fiscal 2018. Also, in the third quarter of fiscal 2019, LTOs accounted for significant volume growth in the Global segment. Further, Lamb Weston is gaining from robust price/mix, evident from the fact that the metric remained favorable across all segments in the third quarter.
High Costs and Weakness in Europe are Concerns
Although Lamb Weston is on track with efforts to boost capabilities, there are significant headwinds that cannot be easily ignored. Markedly, the company’s SG&A expenses have been rising for a while. For fiscal 2019, management expects SG&A costs to increase considerably due to planned investments to support the upgrade of information systems and enterprise resource planning infrastructure. Additionally, the company expects transportation, input and manufacturing costs to increase in fiscal 2019.
To further aggravate maters, this Zacks Rank #4 (Sell) company is experiencing uncertainties in Europe. In fact, operations in the region are expected to remain dismal during fiscal 2019 and in the first half of fiscal 2020, thanks to a poor potato crop. Such downturns have caused shares of the company to plunge nearly 26.3% in the past three months compared with the industry’s decline of 19.2%.
All said, we expect that the company’s expansion plans will cushion the aforementioned headwinds and revive the stock.
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