Lamb Weston(LW) - 2025 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis, market risks, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the thirteen weeks ended August 25, 2024, detailing earnings, balance sheets, cash flows, and accompanying notes Consolidated Statements of Earnings Net sales slightly decreased by 0.7%, while net income and diluted earnings per share significantly declined by 45.7% and 45.0% respectively Consolidated Statements of Earnings Highlights (Thirteen Weeks Ended) | Metric | August 25, 2024 | August 27, 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,654.1M | $1,665.3M | -0.7% | | Gross Profit | $356.0M | $499.5M | -28.7% | | Income from Operations | $212.1M | $323.3M | -34.4% | | Net Income | $127.4M | $234.8M | -45.7% | | Diluted EPS | $0.88 | $1.60 | -45.0% | Consolidated Balance Sheets Total assets increased to $7,512.5 million as of August 25, 2024, primarily due to higher property, plant and equipment and short-term borrowings, with total stockholders' equity also rising slightly Consolidated Balance Sheet Highlights | Metric | August 25, 2024 | May 26, 2024 | | :--- | :--- | :--- | | Total Current Assets | $2,063.6M | $2,090.0M | | Total Assets | $7,512.5M | $7,367.0M | | Total Current Liabilities | $1,730.3M | $1,624.1M | | Total Liabilities | $5,675.8M | $5,579.2M | | Total Stockholders' Equity | $1,836.7M | $1,787.8M | Consolidated Statements of Cash Flows Net cash from operating activities slightly decreased to $330.2 million, while investing activities increased cash usage, and financing activities provided $52.2 million, reversing a prior-year outflow Consolidated Cash Flow Summary (Thirteen Weeks Ended) | Cash Flow Activity | August 25, 2024 | August 27, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $330.2M | $334.6M | | Net Cash used for Investing Activities | ($335.6M) | ($304.8M) | | Net Cash provided by (used for) Financing Activities | $52.2M | ($171.7M) | | Net Increase (Decrease) in Cash | $49.4M | ($141.5M) | Condensed Notes to Consolidated Financial Statements These notes detail significant accounting policies, segment performance, debt obligations, liquidity, and a significant restructuring plan announced subsequent to the quarter's end Segment Net Sales (Thirteen Weeks Ended) | Segment | August 25, 2024 | August 27, 2023 | Change | | :--- | :--- | :--- | :--- | | North America | $1,103.7M | $1,135.4M | -2.8% | | International | $550.4M | $529.9M | +3.9% | | Total | $1,654.1M | $1,665.3M | -0.7% | Segment Adjusted EBITDA (Thirteen Weeks Ended) | Segment | August 25, 2024 | August 27, 2023 | Change | | :--- | :--- | :--- | :--- | | North America | $276.1M | $379.4M | -27.2% | | International | $50.5M | $89.6M | -43.6% | | Total Reportable Segments | $326.6M | $469.0M | -30.4% | - On October 1, 2024, the company announced a restructuring plan expected to incur pre-tax charges of $200 million to $250 million in fiscal 2025, including facility closure, production curtailment, 4% headcount reduction, and capital expenditure cuts[59] - As of August 25, 2024, the company had $1,004.0 million of available liquidity under its committed global revolving credit facility[39] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses first quarter financial results, highlighting a challenging operating environment, the announcement of a significant restructuring plan, and the fiscal 2025 outlook anticipating sales growth but an earnings decline Executive Summary and Outlook First quarter results met expectations despite challenges, leading to a major Restructuring Plan announced on October 1, 2024, with fiscal 2025 outlook projecting sales growth but an earnings decline - The company announced a Restructuring Plan expected to record total pre-tax charges of $200 million to $250 million in fiscal 2025[68] - The restructuring actions are expected to deliver approximately $55 million of pre-tax savings in fiscal 2025 ($85 million on an annualized basis)[68] - Fiscal 2025 outlook anticipates volume declines in the first half, followed by an increase in the second half due to ERP system transition impacts and new customer contracts[69] Results of Operations Net sales declined 1% to $1,654.1 million due to volume decreases, while gross profit significantly fell to $356.0 million impacted by higher costs and a product withdrawal, leading to a 45.7% net income decline - Net sales declined 1% due to a 3% volume decrease, partially offset by a 2% price/mix increase[74][75] - North America segment sales fell 3% due to a 4% volume decline from customer share losses and soft restaurant traffic[76] - International segment sales grew 4%, as a 5% price/mix increase offset a 1% volume decline[77] - Gross profit decline was driven by higher manufacturing costs, an approximately $39 million loss from a voluntary product withdrawal, and lower sales volumes[79] - The effective tax rate increased to 28.5% from 22.9% in the prior year, primarily due to a higher proportion of earnings from international locations with higher tax rates[88] Liquidity and Capital Resources As of August 25, 2024, the company maintained strong liquidity with $120.8 million cash and $1,004.0 million available credit, while operating cash flow was $330.2 million, investing activities used $335.6 million, and financing activities provided $52.2 million Cash Flow Summary (Thirteen Weeks Ended) | Activity | August 25, 2024 | August 27, 2023 | | :--- | :--- | :--- | | Operating Activities | $330.2M | $334.6M | | Investing Activities | ($335.6M) | ($304.8M) | | Financing Activities | $52.2M | ($171.7M) | - Repurchased 1,412,852 shares for $82.0 million at an average price of $58.04 per share during the quarter[48][95] - Paid $51.7 million in cash dividends to common stockholders[96] - Reduced the fiscal 2025 capital expenditure estimate by $100 million to $750 million[94] Non-GAAP Financial Measures This section reconciles non-GAAP measures, showing Adjusted EBITDA decreased to $289.9 million in Q1 FY2025, with adjustments primarily including interest, taxes, depreciation, amortization, and unrealized derivative gains Reconciliation of Net Income to Adjusted EBITDA | Metric | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | Net Income | $127.4M | $234.8M | | Adjustments | $162.5M | $178.0M | | Adjusted EBITDA | $289.9M | $412.8M | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices, foreign currency exchange rates, and interest rates, with sensitivity analyses indicating potential charges from adverse changes in these factors - Commodity Price Risk: A hypothetical 10% decline in market prices would result in a charge to cost of sales of $8.2 million[112] - Foreign Currency Exchange Rate Risk: A hypothetical 10% adverse change in exchange rates versus the U.S. dollar would result in losses of $61.8 million[113] - Interest Rate Risk: A one percent increase in interest rates on variable-rate debt would increase annual interest expense by $15.7 million[114] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of August 25, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of August 25, 2024, the company's disclosure controls and procedures were effective[118] - No material changes to internal control over financial reporting occurred during the quarter[119] Part II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, and other significant corporate developments Item 1. Legal Proceedings The company is defending against securities and derivative lawsuits filed in 2024, alleging misrepresentations related to its ERP system implementation and breaches of fiduciary duty - The company and certain executive officers are defendants in securities and derivative lawsuits filed in June, August, and September 2024[57] - The lawsuits allege misrepresentations and omissions regarding the design and implementation of the company's enterprise resource planning (ERP) system[57] - The company believes the lawsuits are without merit and intends to defend itself vigorously[57] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended May 26, 2024 - No material changes to the risk factors discussed in the Form 10-K have occurred[121] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the thirteen weeks ended August 25, 2024, the company repurchased 1,412,852 shares for $82.0 million under its share repurchase program, with $308 million remaining authorized Share Repurchase Activity (Thirteen Weeks Ended August 25, 2024) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | July 22 - Aug 25, 2024 | 1,589,872 | $57.87 | 1,412,852 | $308M | - As of August 25, 2024, approximately $308 million remained authorized for repurchase under the share repurchase program[124] Item 5. Other Information This section details the Restructuring Plan approved on October 1, 2024, which includes facility closure, production curtailments, workforce reduction, capital expenditure cuts, and expected pre-tax charges of $200 million to $250 million - On October 1, 2024, the board approved a restructuring plan to drive operational and cost efficiencies[125] - Key actions include: permanent closure of the Connell, WA facility; temporary production curtailments; a 4% global workforce reduction; and a $100 million reduction in FY2025 capital expenditures[126][127] - The company expects to record total pre-tax charges of $200 million to $250 million in fiscal 2025, with approximately 80% being cash expenditures[128]