[Fiscal 2025 Performance and 2026 Outlook](index=1&type=section&id=Fiscal%202025%20Performance%20and%202026%20Outlook) Lamb Weston's fiscal 2025 saw flat net sales and declining profitability, while the fiscal 2026 outlook projects continued consumer pressure and introduces a new cost-saving strategic plan | Financial Metric | Q4 2025 | Q4 YoY Growth | FY 2025 | FY YoY Growth | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,675.8 million | 4% | $6,451.3 million | —% | | Income from operations | $185.8 million | (13)% | $665.1 million | (38)% | | Net income | $119.9 million | (7)% | $357.2 million | (51)% | | Diluted EPS | $0.85 | (5)% | $2.50 | (50)% | | Adjusted Income from Operations | $187.9 million | (2)% | $816.6 million | (25)% | | Adjusted Diluted EPS | $0.87 | 12% | $3.35 | (34)% | | Adjusted EBITDA | $284.9 million | 1% | $1,220.5 million | (14)% | - Full year net sales were flat as a **2% volume increase** was offset by a **2% price/mix decrease**, reflecting pricing support for customers in a competitive global market[15](index=15&type=chunk) - Adjusted Gross Profit for FY2025 fell by **$298.2 million**, primarily due to increased manufacturing costs per pound, higher factory burden absorption from temporarily curtailed production, and low-single-digit input cost inflation[16](index=16&type=chunk) [Fiscal 2025 Performance Summary](index=1&type=section&id=Fiscal%202025%20Performance%20Summary) For fiscal year 2025, Lamb Weston's net sales remained flat due to offsetting volume and price/mix changes, while profitability significantly declined by 38% to 51% across key metrics, driven by increased manufacturing, input, and transportation costs [Q4 Fiscal 2025 Performance](index=2&type=section&id=Q4%20Fiscal%202025%20Performance) In Q4 fiscal 2025, net sales grew **4% to $1,675.8 million** driven by volume gains, though partially offset by competitive pricing, leading to declines in gross profit and income from operations despite lower manufacturing costs - Q4 net sales increased **4% to $1,675.8 million**, with volume up **8%** due to contract wins, partially offset by a **4% decline** in price/mix from competitive pricing efforts[6](index=6&type=chunk) - Gross profit declined by **$45.6 million**, as unfavorable price/mix was partially offset by lower manufacturing costs per pound, which benefited from lapping a **~$40 million** impact from a product withdrawal in the prior year[7](index=7&type=chunk) - Adjusted EBITDA saw a slight increase of **1% to $284.9 million**, primarily due to lower Adjusted SG&A expenses which offset the decline in Adjusted Gross Profit[1](index=1&type=chunk)[7](index=7&type=chunk) [Full Year Fiscal 2025 Performance](index=3&type=section&id=Full%20Year%20Fiscal%202025%20Performance) For full fiscal year 2025, net sales remained flat at **$6,451.3 million** due to offsetting volume and price/mix changes, while profitability was severely impacted, with Adjusted Gross Profit falling by **$298.2 million** and Adjusted EBITDA decreasing by **14%** due to various cost increases - FY2025 net sales were flat at **$6,451.3 million**, as a **2% volume increase** was offset by a **2% price/mix decrease**[15](index=15&type=chunk) - Adjusted Gross Profit declined by **$298.2 million**, impacted by higher manufacturing costs, increased factory burden from curtailed production, low-single-digit input cost inflation, and **$57.6 million** in incremental depreciation from capacity expansions[16](index=16&type=chunk) - Adjusted Net Income and Adjusted Diluted EPS fell by **35%** and **34%** respectively, reflecting lower gross profit and higher interest expense, which were partially offset by reduced SG&A[1](index=1&type=chunk)[17](index=17&type=chunk) [Segment Performance Analysis (FY 2025)](index=3&type=section&id=Segment%20Performance%20Analysis%20%28FY%202025%29) In fiscal 2025, North America's net sales declined **2% to $4,265.2 million** with a **13%** Adjusted EBITDA drop due to pricing and costs, while International's net sales grew **4% to $2,186.1 million** from volume gains, but its Adjusted EBITDA fell **24%** due to higher manufacturing and warehousing costs | Segment | FY 2025 Net Sales | YoY Change | FY 2025 Adj. EBITDA | YoY Change | | :--- | :--- | :--- | :--- | :--- | | North America | $4,265.2 million | (2)% | $1,101.4 million | (13)% | | International | $2,186.1 million | 4% | $253.7 million | (24)% | - North America's performance was impacted by a **3% price/mix decline** to support customers, higher manufacturing costs from curtailed production, and increased transportation costs[18](index=18&type=chunk)[19](index=19&type=chunk) - International sales growth was driven by a **5% volume increase** from new and existing customers, but profitability was hurt by higher raw potato costs (especially in the first half), start-up costs in the Netherlands, and increased warehousing costs[20](index=20&type=chunk)[21](index=21&type=chunk) [Financial Position and Shareholder Returns](index=5&type=section&id=Financial%20Position%20and%20Shareholder%20Returns) As of May 25, 2025, Lamb Weston maintained a solid liquidity position with **$1,166.8 million** available under its credit facility, increased net cash from operations to **$868.3 million**, significantly reduced capital expenditures to **$650.7 million**, and returned **$488.9 million** to shareholders [Liquidity and Cash Flow](index=5&type=section&id=Liquidity%20and%20Cash%20Flow) The company ended fiscal 2025 with **$70.7 million** in cash and **$1,166.8 million** in available liquidity, with net cash from operating activities increasing to **$868.3 million** primarily due to favorable working capital changes - As of May 25, 2025, the company had **$70.7 million** in cash and cash equivalents and **$1,166.8 million** available under its revolving credit facility[23](index=23&type=chunk) - Net cash from operating activities increased to **$868.3 million** in FY2025 from **$798.2 million** in the prior year, largely due to favorable working capital changes, including an **8-day decline** in inventory days on hand[24](index=24&type=chunk)[53](index=53&type=chunk) [Capital Expenditures](index=5&type=section&id=Capital%20Expenditures) Capital expenditures for fiscal 2025 were **$650.7 million**, a significant decrease of **$323.1 million** from the prior year, reflecting the completion of major capacity expansion projects - Net capital expenditures were **$650.7 million**, down **$323.1 million** from the prior year, as strategic capacity expansion projects in China, the U.S., and the Netherlands were completed or nearing completion[25](index=25&type=chunk) [Capital Returned to Shareholders](index=5&type=section&id=Capital%20Returned%20to%20Shareholders) In fiscal 2025, Lamb Weston returned a total of **$488.9 million** to shareholders through **$206.9 million** in cash dividends and **$282.0 million** in share repurchases, buying back **4.9 million shares** at an average price of **$57.94** | Capital Return Method | FY 2025 Amount | | :--- | :--- | | Cash Dividends | $206.9 million | | Common Stock Repurchases | $282.0 million | | **Total Returned** | **$488.9 million** | - The company repurchased **4,867,449 shares** at an average price of **$57.94 per share** and has approximately **$358 million** remaining under its repurchase authorization[26](index=26&type=chunk) - On July 15, 2025, the Board of Directors declared a quarterly dividend of **$0.37 per share**[27](index=27&type=chunk) [Focus to Win Strategic Plan and Fiscal 2026 Outlook](index=1&type=section&id=Focus%20to%20Win%20Strategic%20Plan%20and%20Fiscal%202026%20Outlook) Lamb Weston introduced its "Focus to Win" strategic plan, targeting at least **$250 million** in annualized savings and **$120 million** in working capital improvements, while projecting fiscal 2026 net sales of **$6.35 billion to $6.55 billion** and Adjusted EBITDA of **$1.0 billion to $1.2 billion** amidst continued consumer pressure - The company announced the "Focus to Win" plan to deliver at least **$250 million** in savings, improve execution, and drive long-term profitable growth[1](index=1&type=chunk)[5](index=5&type=chunk) | Fiscal 2026 Outlook | Target Range | | :--- | :--- | | Net sales | $6.35 billion to $6.55 billion | | Adjusted EBITDA | $1.0 billion to $1.2 billion | | Capital Expenditures | ~$500 million | [Fiscal 2026 Outlook](index=5&type=section&id=Fiscal%202026%20Outlook) The fiscal 2026 outlook projects net sales of **$6.35 billion to $6.55 billion** and Adjusted EBITDA of **$1.0 billion to $1.2 billion**, assuming continued consumer pressure and flat global restaurant traffic, with expected price/mix declines throughout the year - The outlook for FY2026 includes a **53rd week** and assumes continued pressure on consumers, with global restaurant traffic remaining approximately even with fiscal 2025 levels[28](index=28&type=chunk)[29](index=29&type=chunk) - Price/mix is expected to decline **low to mid-single-digits** in the first half of FY2026 and **low single-digits** in the second half[35](index=35&type=chunk) - Capital expenditures are projected to be approximately **$500 million**, focused on base capital, modernization, and environmental projects like wastewater treatment[35](index=35&type=chunk) [Focus to Win Cost Savings Program](index=6&type=section&id=Focus%20to%20Win%20Cost%20Savings%20Program) The "Focus to Win" program targets at least **$250 million** in annualized run-rate savings by fiscal 2028 and **$120 million** in working capital improvements by fiscal 2027, involving a **4%** workforce reduction and pre-tax charges of **$70 million to $100 million** - The program targets at least **$250 million** in annualized run rate savings by the end of fiscal 2028, with **$200 million** expected by fiscal year-end 2027[32](index=32&type=chunk) - The company expects to generate approximately **$120 million** of working capital improvements by the end of fiscal 2027[32](index=32&type=chunk) - The plan includes a **4% reduction** in the global workforce and will result in total pre-tax charges of **$70 million to $100 million**, most of which will be paid in fiscal 2026[32](index=32&type=chunk) [Compensation Design Changes](index=6&type=section&id=Compensation%20Design%20Changes) To align management incentives with shareholder interests, the company is modifying its fiscal 2026 compensation plans to include free cash flow and ROIC targets, and the Board of Directors will receive their annual retainer in restricted stock - The fiscal 2026 annual incentive plan will incorporate a **free cash flow target**, and the long-term incentive plan will add a **return on invested capital (ROIC) metric**[33](index=33&type=chunk) - To enhance shareholder alignment, the Board of Directors has elected to receive their fiscal 2026 annual cash retainer in shares of **restricted stock**[33](index=33&type=chunk) [Financial Statements and Reconciliations](index=7&type=section&id=Financial%20Statements%20and%20Reconciliations) This section provides detailed financial statements and reconciliations of non-GAAP measures, offering a comprehensive view of the company's financial performance, position, and cash flows, along with adjustments for comparability [Consolidated Financial Statements](index=9&type=section&id=Consolidated%20Financial%20Statements) This section presents Lamb Weston's unaudited Consolidated Statements of Earnings, Balance Sheets, and Cash Flows for the periods ended May 25, 2025, and May 26, 2024, providing a detailed view of the company's financial performance and position - The Consolidated Statements of Earnings detail the company's revenues, costs, and profitability, showing a net income of **$357.2 million** for the fifty-two weeks ended May 25, 2025[45](index=45&type=chunk)[46](index=46&type=chunk) - The Consolidated Balance Sheets show total assets of **$7.39 billion** and total stockholders' equity of **$1.74 billion** as of May 25, 2025[50](index=50&type=chunk)[51](index=51&type=chunk) - The Consolidated Statements of Cash Flows report net cash provided by operating activities was **$868.3 million** for the fifty-two weeks ended May 25, 2025[52](index=52&type=chunk)[53](index=53&type=chunk) [Segment Information](index=13&type=section&id=Segment%20Information) This section provides a detailed breakdown of financial performance for the North America and International segments, including net sales, price/mix, volume, and Adjusted EBITDA for Q4 and full fiscal year 2025, enabling comparative regional analysis Q4 2025 Performance | Q4 2025 Performance | North America | International | | :--- | :--- | :--- | | Net Sales Change | (1)% | 15% | | Price/Mix | (5)% | (1)% | | Volume | 4% | 16% | | Adj. EBITDA Change | (7)% | 55% | FY 2025 Performance | FY 2025 Performance | North America | International | | :--- | :--- | :--- | | Net Sales Change | (2)% | 4% | | Price/Mix | (3)% | (1)% | | Volume | 1% | 5% | | Adj. EBITDA Change | (13)% | (24)% | [Reconciliation of Non-GAAP Financial Measures](index=14&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS, quantifying the impact of specific adjustments to present core operating performance - The company provides non-GAAP measures to offer supplemental information on core operating performance by excluding items like foreign currency exchange impacts, unrealized derivative activities, and other items affecting comparability[40](index=40&type=chunk)[41](index=41&type=chunk) - For the full fiscal year 2025, GAAP Net Income of **$357.2 million** was reconciled to Adjusted Net Income of **$478.6 million**. The primary adjustments were for restructuring plan expenses (**$143.7 million**) and unrealized derivative gains/losses[61](index=61&type=chunk) - FY 2025 GAAP Net Income of **$357.2 million** was reconciled to Adjusted EBITDA of **$1,220.5 million** by adding back interest, taxes, depreciation & amortization, and other specified adjustments[65](index=65&type=chunk)

Core Viewpoint - Lamb Weston Holdings, Inc. is expected to report a decline in earnings and revenues for the fourth quarter of fiscal 2025, with earnings per share estimated at 64 cents, reflecting an 18% decrease year-over-year [1][2]. Financial Performance - The Zacks Consensus Estimate for Lamb Weston's quarterly revenues is projected at $1.59 billion, indicating a 1.2% decline from the previous year [2]. - Adjusted EBITDA is anticipated to reach $250.8 million, representing an 11.5% year-over-year decline [4][8]. Operational Challenges - The company is facing a challenging operating environment characterized by sluggish restaurant traffic, customer share losses, and global overcapacity, which are negatively impacting volume performance [3][8]. - Rising manufacturing costs due to input cost inflation, particularly increased raw potato prices, along with operational inefficiencies and elevated transportation and warehousing expenses, are further straining performance [4]. Competitive Landscape - Lamb Weston is experiencing pricing pressure and intensified competition, which are adversely affecting its price/mix performance, with a forecasted decline of 2.5% in price/mix for the fourth quarter [4][8]. - The company has a trailing four-quarter negative earnings surprise of 11.5% on average, indicating ongoing difficulties in meeting earnings expectations [2]. Strategic Initiatives - Despite the challenges, Lamb Weston is seeing positive outcomes from its Restructuring Plan aimed at improving efficiency and profitability, as well as modernizing its manufacturing capabilities [5].

Core Viewpoint - Lamb Weston (LW) is anticipated to report a year-over-year decline in earnings due to lower revenues, which could significantly influence its near-term stock price depending on how actual results compare to consensus estimates [1][2]. Earnings Expectations - The upcoming earnings report is expected to be released on July 23, with a consensus estimate of $0.64 per share, reflecting an 18% decrease year-over-year. Revenues are projected at $1.59 billion, down 1.2% from the same quarter last year [3][2]. - The consensus EPS estimate has been revised down by 3.33% over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][12]. Earnings Surprise Prediction - The Zacks Earnings ESP (Expected Surprise Prediction) model indicates that the Most Accurate Estimate for Lamb Weston is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -3.27%. This suggests a challenging outlook for the company to beat the consensus EPS estimate [12][8]. - A positive Earnings ESP is generally a strong predictor of an earnings beat, especially when combined with a favorable Zacks Rank. However, Lamb Weston currently holds a Zacks Rank of 4, which complicates the prediction of an earnings beat [10][12]. Historical Performance - In the last reported quarter, Lamb Weston exceeded the consensus EPS estimate of $0.87 by delivering earnings of $1.10, resulting in a surprise of +26.44%. However, the company has only beaten consensus EPS estimates once in the last four quarters [13][14]. Conclusion - While Lamb Weston does not appear to be a strong candidate for an earnings beat, investors should consider other factors that may influence stock performance ahead of the earnings release [17][15].

Core Insights - Lamb Weston shares experienced a decline, being among the worst performers in the S&P 500, as investors reacted to the less impactful changes from activist investors [2][5] - The company announced a "cooperation agreement" with Jana Partners Management and Continental Grain Company, which includes appointing four new board members, expanding the board from 12 to 13 seats [3][6] - Jana Partners had previously indicated a desire for a more significant overhaul of the company, leading to initial optimism among investors when their stake was disclosed [4][6] Company Developments - Under the new agreement, Bradley Alford, a former CEO of Nestlé USA, will be appointed as chairman, with Jana Partners involved in selecting additional board members [3][6] - Jana Partners' Managing Partner, Scott Ostfeld, expressed satisfaction with the collaborative outcome and emphasized the goal of improving performance and shareholder value [6] - Despite the agreement, Lamb Weston shares fell nearly 3% on the announcement day and have decreased over 22% year-to-date [5][6]

Core Insights - The article discusses the author's investment strategy, focusing on medium-term investments with catalysts for value unlocking or short selling in case of downside catalysts [1] - The author has a generalist approach but has significant experience in analyzing the industrial, consumer, and technology sectors, where they typically have higher conviction [1] Investment Strategy - The strategy involves investing in growth stories that are available at reasonable prices [1] - The author emphasizes the importance of catalysts that can drive upside in investments [1] Experience and Background - The author has over 15 years of experience in investing, including providing research services to mid-sized hedge funds with assets under management between $100 million and $500 million [1] - A brief experience as a sell-side analyst is also noted, contributing to the author's comprehensive understanding of the market [1]

Core Viewpoint - Bragar Eagel & Squire, P.C. is investigating potential claims against Lamb Weston Holdings, Inc. due to a class action complaint alleging breaches of fiduciary duties by the board of directors during the implementation of a new ERP system [1] Company Overview - Lamb Weston is the largest producer of frozen potato products in North America and the second largest globally, supplying products to restaurants and retailers, including major customer McDonald's [2] ERP System Implementation - On July 25, 2023, Lamb Weston announced the completion of the design phase for a new Enterprise Resource Planning (ERP) software system aimed at integrating key business operations [3] - The new ERP system was intended to replace outdated financial and operational systems, which had suffered from years of under-investment in information technology [3] Allegations and Financial Impact - The class action complaint alleges that Lamb Weston made material misrepresentations regarding the ERP system's design and implementation, claiming it strengthened operational infrastructure while downplaying issues as "usual bumps" [4] - On April 4, 2024, Lamb Weston reported significant problems with the ERP transition, resulting in over $130 million in lost sales during the third quarter and a substantial reduction in sales guidance for the fiscal year [5] - The ERP rollout negatively impacted net sales by $135 million, net income by $72 million, and adjusted EBITDA by $95 million, leading to a stock price decline of over 19% [5]

Technical Analysis - Lamb Weston (LW) has reached an important support level and surpassed resistance at the 20-day moving average, indicating a short-term bullish trend [1] - The 20-day simple moving average is a useful tool for short-term traders as it smooths out price trends and provides more trend reversal signals compared to longer-term moving averages [2] Stock Performance - Shares of LW have increased by 7.7% over the past four weeks, suggesting positive momentum [3] - The company currently holds a Zacks Rank 3 (Hold), indicating potential for continued gains [3] Earnings Estimates - There have been three upward revisions for LW's earnings estimates for the current fiscal year, with no downward revisions, leading to an increase in the consensus estimate [3] - The combination of positive earnings estimate revisions and technical indicators suggests that LW may experience further gains in the near future [4]

Technical Analysis - Lamb Weston (LW) has recently reached a key level of support and has overtaken the 50-day moving average, indicating a short-term bullish trend [1] - The 50-day simple moving average is a significant marker for traders and analysts to determine support or resistance levels [1] Performance Metrics - Over the past four weeks, LW has gained 7.7% [2] - The company currently holds a Zacks Rank 3 (Hold), suggesting potential for further stock price increases [2] Earnings Estimates - There have been positive earnings estimate revisions for LW, with no estimates decreasing in the past two months and three estimates increasing [2] - The consensus estimate for LW has also seen an increase, reinforcing the bullish outlook [2][3] Investment Outlook - Given the positive technical factors and earnings estimate revisions, LW may present a compelling investment opportunity for potential gains in the near future [3]

Core Viewpoint - J.P. Morgan analyst Ken Goldman maintains a Neutral rating on Lamb Weston Holdings, Inc. while raising the price forecast from $65 to $66, citing medium-term risks related to supply and demand imbalances in the French fry market [1][2]. Group 1: Financial Performance - Lamb Weston reported third-quarter adjusted earnings per share of $1.10, exceeding the analyst consensus estimate of 87 cents [1]. - Quarterly sales reached $1.521 billion, reflecting a 4% year-over-year increase, surpassing the street view of $1.492 billion [1]. Group 2: Market Conditions and Risks - The industry has long-term growth potential, but current conditions create uncertainty, with limited visibility beyond the near term [2]. - Goldman expresses doubts about whether demand will grow sufficiently to match supply in the coming years, despite the company's plans to adjust prices to regain market share [3]. - Forecasting Lamb Weston's performance beyond the upcoming quarter is challenging due to uncertainties surrounding fiscal year 2026 [4]. Group 3: Potential Upside Factors - Potential positive factors include new customer contracts, lower potato input costs in North America, greater-than-expected cost savings, and increased share repurchases [4]. - Fiscal year 2026 will include an extra week, which could positively impact results [4]. Group 4: Additional Risks - Ongoing pricing initiatives to win business may not guarantee cost deflation [5]. - Persistent challenges in the quick-service restaurant sector and a possible rise in overall fry supply are noted as risks [5]. - Uncertainties related to tariffs also pose potential risks [5].

Group 1 - Lamb Weston reported revenue of $1.52 billion, exceeding expectations by 1.8% compared to the anticipated $1.49 billion, and earnings per share (EPS) of $1.10, which is 26.6% higher than the consensus estimate of 88 cents per share [2] - The company maintained its revenue and earnings guidance for the remainder of its 2025 fiscal year, projecting $6.4 billion in revenue at the midpoint and EPS guidance of $3.13, consistent with its average since 2019 [2] - The operating margin improved to 16.4% from 15.4% in the previous quarter, indicating a positive trend despite a year-over-year decline [3] Group 2 - Lamb Weston successfully replaced the customer volume lost during its transition to a new Enterprise Resource Planning (ERP) system, which had previously resulted in a significant loss of customers [4] - The company is nearing completion of crop negotiations for the upcoming fiscal year, expecting a mid-single-digit price decline for North American crops, while international crop prices are projected to remain flat year-over-year [5] - Capital spending increased to 15.3% of net sales in 2024, primarily due to the ERP implementation, but a forecasted reduction of $450 million in CapEx spending is expected by the end of fiscal year 2026 compared to 2024 [6] Group 3 - Despite maintaining its outlook, Lamb Weston faces challenges with persistent softness in restaurant traffic, particularly affecting sales to major customer McDonald's due to inflationary pressures [7] - The company may benefit from potential tariff impacts, as it could lead to a shift in suppliers from competitors like McCain Foods to Lamb Weston, which has expanded its production capacity since 2020 [10]