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Lamb Weston (LW) Up 0.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Lamb Weston (LW - Free Report) . Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lamb Weston due for a pullback? 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 catalysts.

Lamb Weston (LW - Free Report) Earnings Miss in Q1, Sales Improve Y/Y

Lamb Weston delivered first-quarter fiscal 2020 results, wherein the company delivered earnings of 79 cents, up 8% year over year. The upside was backed by higher income from operations and gains of nearly 3 cents from BSW acquisition. However, the bottom line missed the Zacks Consensus Estimate of 80 cents.

Net sales came in at $989 million, increasing 8% year on year and surpassing the consensus mark of $$971.8 million. Volumes grew 6% on the back of strength in the Global segment, gains from acquisition and favorable price/mix impacts.
 
Gross profit increased 7.8% to $248.6 million, backed by price mix and greater volumes. These were somewhat countered by higher manufacturing costs stemming from maintenance and other related costs. Further, gross profits were hurt by higher input costs and depreciation expenses related to the company’s french fry production line in Oregon.

SG&A expenses increased 0.8% to reach $78.6 million due to higher IT and infrastructure-related costs. Nevertheless, foreign exchange expenses as well as advertising and promotional costs declined year over year.
 
EBITDA (including unconsolidated joint ventures) increased 9.4% to $232.9 million, driven by higher operating income and benefits from BSW acquisition.

Segment Analysis
 
Sales in the Global segment grew 11% to $517.6 million. Volumes increased 9% on strong sales and gains from acquisitions. Price/mix increased 2% courtesy of pricing adjustments in multi-year contracts. Product contribution margin in the segment increased 9% to $102.7 million, backed by higher volumes and price/mix gains.
 
Foodservice sales increased 3% to $ 305.4 million. Price/mix improved 2%, driven by consistent favorable impact of strategic pricing actions undertaken last year and better mix. Moreover, volumes inched up 1% on the back of branded and distributor private label products growth. Product contribution margin rose $0.5 million to reach $102.5 million, owing to improved price/mix and volumes.
 
In the Retail segment, sales went up 11% to $129.3 million. Volumes in the category went up 8%, stemming from increased branded and private label products sales. Price/mix improved 3% owing to gains from pricing actions and favorable mix. Product contribution margin increased 27% to $28.9 million driven by improved price/mix and volumes as well as lower advertising and promotional expenses.
 
Other Financial Details
 
Lamb Weston ended the quarter with cash and cash equivalents of $19 million, long-term debt and financing obligations (excluding current portion) of $2,210.1 million and total shareholders’ equity of $92.3 million.
 
The company generated $238.5 million as net cash from operating activities in the fiscal first quarter.
 
During the quarter, the company paid out dividends worth $29.2 million.

Guidance
 
Management is pleased with its quarterly results, which reflects consistent growth in its segments fueled by gains from improved volumes and price/mix. Going ahead, management expects the operating environment to remain favorable and aid meeting set targets.
 
That said, management reiterated its outlook for fiscal 2020. The view includes anticipated gains for the 53rd week. It expects net sales to increase mid-single digits, driven by higher volumes and price/mix.
 
Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $950-$970 million. However, the company expects SG&A expenses to rise in the fiscal, due to increased investment, promotional and advertisement expenses. Interest costs are projected to be roughly $110 million. Further, the company plans to use cash of $300 million for capital expenditures, excluding buyouts.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Lamb Weston has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lamb Weston has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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