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Lamb Weston (LW) Up 8.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Lamb Weston (LW - Free Report) . Shares have added about 8.6% in that time frame, outperforming 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 drivers.
Lamb Weston delivered second-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate and rising year over year. Sturdy performance in the Global as well as other units boosted the quarterly results. Moreover, management raised its net sales and adjusted EBITDA guidance for fiscal 2020.
Quarter in Detail
In fiscal second quarter, the company delivered adjusted earnings of 95 cents per share, up 19% year over year. The upside was backed by higher income from operations and gains of nearly 4 cents from BSW acquisition. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 85 cents.
Net sales came in at $1019.2 million, up 12% year on year and surpassing the consensus mark of $964.39 million. Volumes grew 10% on the back of strength in the Global and Foodservice segments coupled with gains from acquisition and favorable price/mix impacts. Additional shipping days related to Thanksgiving also contributed to top-line growth.
Gross profit increased 14.5% to $285.1 million, backed by price mix, greater volumes and lower transportation costs. 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 22.1% to $91.6 million due to higher incentive compensation expenses and investments in the company’s sales, marketing, operating as well as systems capabilities. Nevertheless, foreign exchange expenses declined year over year.
EBITDA (including unconsolidated joint ventures) increased 17.1% to $260.9 million, driven by higher operating income and benefits from BSW acquisition.
Segment Analysis
Sales in the Global segment rose 15% to $539.6 million. Volumes increased 14% on strong sales, gains from acquisitions and extra shipping days due to Thanksgiving holiday. Price/mix increased 1% courtesy of pricing adjustments in multi-year contracts. Product contribution margin in the segment increased 15% to $128.9 million, backed by higher volumes, lower transportation costs and price/mix gains.
Foodservice sales increased 9% to $304.9 million. Price/mix improved 4%, driven by consistent favorable impact of strategic pricing actions undertaken during the quarter and better mix. Moreover, volumes moved up 5% on the back of branded and distributor private label products growth. Product contribution margin rose 14% million to reach $111.3 million, owing to improved price/mix and volumes along with lower logistics cost.
In the Retail segment, sales went up 7% to $132.1 million. Volumes in the category went up 4%, stemming from increased Grown sales in Idaho as well as branded and private label products sales. Additional shipping days related to Thanksgiving also contributed to volume growth. Price/mix improved 3% owing to gains from pricing actions and favorable mix. Product contribution margin increased 10% to $28.5 million driven by improved price/mix and volumes as well as lower transportation cost.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $23.8 million, long-term debt and financing obligations (excluding current portion) of $2,203.7 million as well as total shareholders’ equity of $201.1 million.
Lamb Weston generated $345.3 million as net cash from operating activities at the end of fiscal second quarter.
Guidance
Management is encouraged with its quarterly results, which indicates consistent growth in segments. The upside can be attributed to gains from improved volumes and price/mix. Going ahead, management expects the operating environment to remain favorable and aid meeting set targets.
Moreover, management raised its net sales and adjusted EBITDA outlook for fiscal 2020. It expects net sales to increase at high end of mid-single digit range from its previous guidance of a mid-single digits growth.
Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $965-$985 million, up from its previous guidance of $950-$970 million. Interest costs are projected to be nearly $110 million. Further, the company plans to use cash of $300 million for capital expenditures, excluding buyouts.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Lamb Weston has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.
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Lamb Weston (LW) Up 8.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Lamb Weston (LW - Free Report) . Shares have added about 8.6% in that time frame, outperforming 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 drivers.
Lamb Weston's Q2 Earnings Beat Estimates, Sales Rise Y/Y
Lamb Weston delivered second-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate and rising year over year. Sturdy performance in the Global as well as other units boosted the quarterly results. Moreover, management raised its net sales and adjusted EBITDA guidance for fiscal 2020.
Quarter in Detail
In fiscal second quarter, the company delivered adjusted earnings of 95 cents per share, up 19% year over year. The upside was backed by higher income from operations and gains of nearly 4 cents from BSW acquisition. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 85 cents.
Net sales came in at $1019.2 million, up 12% year on year and surpassing the consensus mark of $964.39 million. Volumes grew 10% on the back of strength in the Global and Foodservice segments coupled with gains from acquisition and favorable price/mix impacts. Additional shipping days related to Thanksgiving also contributed to top-line growth.
Gross profit increased 14.5% to $285.1 million, backed by price mix, greater volumes and lower transportation costs. 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 22.1% to $91.6 million due to higher incentive compensation expenses and investments in the company’s sales, marketing, operating as well as systems capabilities. Nevertheless, foreign exchange expenses declined year over year.
EBITDA (including unconsolidated joint ventures) increased 17.1% to $260.9 million, driven by higher operating income and benefits from BSW acquisition.
Segment Analysis
Sales in the Global segment rose 15% to $539.6 million. Volumes increased 14% on strong sales, gains from acquisitions and extra shipping days due to Thanksgiving holiday. Price/mix increased 1% courtesy of pricing adjustments in multi-year contracts. Product contribution margin in the segment increased 15% to $128.9 million, backed by higher volumes, lower transportation costs and price/mix gains.
Foodservice sales increased 9% to $304.9 million. Price/mix improved 4%, driven by consistent favorable impact of strategic pricing actions undertaken during the quarter and better mix. Moreover, volumes moved up 5% on the back of branded and distributor private label products growth. Product contribution margin rose 14% million to reach $111.3 million, owing to improved price/mix and volumes along with lower logistics cost.
In the Retail segment, sales went up 7% to $132.1 million. Volumes in the category went up 4%, stemming from increased Grown sales in Idaho as well as branded and private label products sales. Additional shipping days related to Thanksgiving also contributed to volume growth. Price/mix improved 3% owing to gains from pricing actions and favorable mix. Product contribution margin increased 10% to $28.5 million driven by improved price/mix and volumes as well as lower transportation cost.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $23.8 million, long-term debt and financing obligations (excluding current portion) of $2,203.7 million as well as total shareholders’ equity of $201.1 million.
Lamb Weston generated $345.3 million as net cash from operating activities at the end of fiscal second quarter.
Guidance
Management is encouraged with its quarterly results, which indicates consistent growth in segments. The upside can be attributed to gains from improved volumes and price/mix. Going ahead, management expects the operating environment to remain favorable and aid meeting set targets.
Moreover, management raised its net sales and adjusted EBITDA outlook for fiscal 2020. It expects net sales to increase at high end of mid-single digit range from its previous guidance of a mid-single digits growth.
Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $965-$985 million, up from its previous guidance of $950-$970 million. Interest costs are projected to be nearly $110 million. Further, the company plans to use cash of $300 million for capital expenditures, excluding buyouts.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Lamb Weston has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.