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Lamb Weston Up More Than 35% in a Year on Solid Sales Trend

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Lamb Weston Holdings Inc. LW has been benefiting from its focus on limited time offerings (LTOs) along with acquisition and other expansion efforts. These efforts along with favorable price/mix have helped the company to sustain a solid top-line trend.

Markedly, management raised its net sales and adjusted EBITDA outlook for fiscal 2020, when it reported second-quarter results. It expects net sales to increase at high end of mid-single digit range compared with its previous guidance of 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.

Clearly, these upsides have raised analysts’ optimism regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings has inched up by a couple of cents to $3.52 in the past 30 days. Moreover, Lamb Weston’s impressive performance has been boosting investors’ sentiment for long. This Zacks Rank #2 (Buy) stock has rallied 38.4% in the past year compared with the industry’s growth of 10.7%.



LTOs: A Significant Driver

Lamb Weston has been benefiting from LTO innovation, which plays a key role in the company’s long-term prospects. Incidentally, LTOs have helped drive growth and market share in fiscal 2018 and 2019. More specifically, LTOs are aiding volume growth in the company’s Global segment. In fact, management is positive about further prospects from new LTOs.

Efforts to Boost Offerings Bode Well

Lamb Weston has been undertaking initiatives to boost offerings and operating capacity. These strategies enable the company to effectively meet rising demand for snacks and fries. In this regard, Lamb Weston’s acquisitions, joint ventures and capacity-expansion efforts bode well. Notably, the company completed the acquisition of joint venture interests in Lamb Weston BSW sometime around mid-fiscal 2019. This contributed to the bottom line in fiscal second quarter. Among other moves, the company acquired Australia-based companies — Ready Meals and Marvel Packers — in 2019 and 2018, respectively. These buyouts have bolstered Lamb Weston’s market share in Australia.

Recently, the company announced a joint venture with Sociedad Comercial del Plata in Argentina. Lamb Weston expects to benefit from greater revenue prospects in Argentina through this deal. Also, it will enable the company to cater to the growing needs of high-quality potato fries in the broader South American market. Additionally, Lamb Weston completed the expansion of a facility located at Hermiston, OR on Jun 18, 2019. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries. This is expected to meet demand conditions in North America and key export markets as well as support production needs emerging from innovation and LTOs.

Wrapping Up

Thanks to the aforementioned initiatives, Lamb Weston boasts a solid top-line trend. Markedly, the company’s sales have been rising year over year for a while. Also, sales surpassed the Zacks Consensus Estimate for the 13th straight time, when it reported second-quarter fiscal 2020 results. Performance in the said quarter was supported by volume growth of 10%, driven by strength in the Global and Foodservice segments, gains from acquisition as well as favorable price/mix impacts. Notably, rise in price/mix across these segments were supported by improved mix and pricing actions. In fact, improved price/mix and volumes drove gross profit during the quarter.

Consistency of such trends is likely to boost the company’s growth further. We believe that these upsides are likely to help Lamb Weston maintain its solid footing in the food industry.

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