Lamb Weston(LW) - 2025 Q4 - Annual Results

Fiscal 2025 Performance and 2026 Outlook 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] - 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] Fiscal 2025 Performance Summary 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 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] - 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] - 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][7] Full Year Fiscal 2025 Performance 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] - 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] - 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][17] Segment Performance Analysis (FY 2025) 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][19] - 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][21] Financial Position and Shareholder Returns 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 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] - 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][53] Capital Expenditures 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] Capital Returned to Shareholders 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] - On July 15, 2025, the Board of Directors declared a quarterly dividend of $0.37 per share[27] Focus to Win Strategic Plan and Fiscal 2026 Outlook 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][5] | 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 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][29] - 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] - Capital expenditures are projected to be approximately $500 million, focused on base capital, modernization, and environmental projects like wastewater treatment[35] Focus to Win Cost Savings Program 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] - The company expects to generate approximately $120 million of working capital improvements by the end of fiscal 2027[32] - 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] Compensation Design Changes 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] - To enhance shareholder alignment, the Board of Directors has elected to receive their fiscal 2026 annual cash retainer in shares of restricted stock[33] Financial Statements and Reconciliations 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 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][46] - 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][51] - 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][53] Segment Information 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 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][41] - 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] - 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]