Lamb Weston Sales and Earnings Rise in Second Quarter
- Net sales to grow at a mid-single digit rate, up from a previous estimate of a low single digit increase, with a relatively balanced contribution from price/mix and volume.
- Adjusted EBITDA including unconsolidated joint ventures to grow at a mid-teens rate, up from a previous estimate of a high single digit increase, reflecting solid sales growth and savings from supply chain efficiencies, partially offset by lower contribution from equity method investment earnings. Potato costs are expected to remain essentially flat.
- Adjusted Diluted EPS of $2.20 to $2.28.
Lamb Weston Holdings, Inc. has reported a net sales increase of 7% to $791 million during the second quarter of fiscal 2017, which ended on November 27 of last year. The Eagle, Idaho, USA-headquartered company, along with its joint venture partners, is a leading supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers around the world. It operates factories in North America, Europe and Asia that serve customers in more than 100 countries around the world.
“We’re very excited to begin our journey as an independent company and are pleased with our better-than-expected second quarter and year-to-date results,” said Tom Werner, president and chief executive officer. “Our focus on execution in this favorable environment is evident in our strong first half performance, and we’ve raised our sales and earnings outlook accordingly.”
He continued: “Demand for frozen potato products continues to grow around the world. We’re managing through a tight capacity environment and driving supply chain efficiencies to meet current demand until our capacity expansion comes online in the second half of calendar 2017. We believe that we’re well positioned to capture growth over the long term through our strong relationships with customers, our innovation and our global footprint.”
Q2 2017 Details
Volume increased 4 percentage points as productivity programs and strong manufacturing plant performance stretched available capacity, allowing the company to meet demand growth in both North America and international markets. Price/mix increased 3 percentage points due to pricing actions and favorable product and customer mix.
Income from operations increased 15 percent to $126 million from $110 million in the prior year period, and included $9 million of costs related to the spinoff from Conagra Brands, Inc. (formerly ConAgra Foods, Inc.) last November. The increase was largely due to favorable price/mix and volume, as well as supply chain efficiencies. Raw potato costs were essentially flat versus the prior year period. Selling, general and administrative expense increased, largely due to incremental costs associated with being a stand-alone business as well as higher incentive compensation costs.
Adjusted EBITDA including unconsolidated joint ventures was $168 million, an increase of 19 percent versus the prior year period, mainly reflecting growth in income from operations, partially offset by lower equity method investment earnings.
Diluted earnings per share (EPS) increased 18 percent to $0.59 from $0.50 in the prior year period. Adjusted diluted EPS rose 26 percent to $0.63, beating the consensus estimate of $0.52 by $0.11. The increases were largely due to higher income from operations, partially offset by higher interest costs and lower equity method investment earnings.
Net sales for the global segment increased 6 percent to $413 million. Volume added 5 percentage points, driven by growth in both domestic and international markets. Price/mix contributed 1 percentage point, largely reflecting price increases for international markets and selected domestic customers, as well as actions to improve customer and product mix.
Global segment product contribution margin increased 17 percent to $92 million, driven by favorable price/mix, volume growth and supply chain efficiency savings.
Net sales for the foodservice segment increased 11 percent to $251 million. Price/mix added 6 percentage points, reflecting pricing actions and improvement in customer and product mix. Volume increased 5 percentage points, largely behind growth of small and mid-sized restaurant chain operators as well as regional and independent food distributors.
The foodservice segment product contribution margin increased 39 percent to $80 million, driven by favorable price/mix, supply chain efficiency savings and volume growth.
Net sales for the retail segment increased 5 percent to $97 million. Volume increased 4 percentage points, largely driven by growth of licensed brands and private label. Price/mix increased 1 percentage point, reflecting higher prices and favorable customer and product mix.
The retail segment product contribution margin increased 36 percent to $21 million, driven by favorable price/mix, the timing of advertising spending, supply chain efficiency savings and volume growth.
Equity Method Investment Earnings
Equity method investment earnings from unconsolidated joint ventures were $6.2 million, a decrease of $1.5 million, largely reflecting the impacts of higher raw potato costs in Europe.
Based on year-to-date performance, the company has updated its outlook for fiscal 2017 as follows: