Lamb Weston(LW) - 2025 Q4 - Annual Report

Part I Business Lamb Weston is a leading global producer of value-added frozen potato products, operating through North America and International segments - Lamb Weston is the leading supplier of value-added frozen potato products in North America and a major international supplier, with french fries being the primary product[7] - The company operates through two reportable segments: North America (U.S., Canada, Mexico) and International (all other regions)[9][10][11] - Significant customer concentration exists, with the ten largest customers making up about 50% of net sales. McDonald's Corporation is the largest customer, accounting for approximately 15% of consolidated net sales in fiscal 2025[16] - The company operates 26 production facilities globally and also utilizes co-packing agreements to source some products[23] - As of July 17, 2025, the company had approximately 10,100 employees, with about 30% covered by collective bargaining agreements[28] - The company expects to spend approximately $100 million in fiscal 2026 and about $500 million over the next six years to comply with environmental regulations, primarily for wastewater treatment[50] Risk Factors The company faces diverse risks including rising input costs, supply chain disruptions, and international operational challenges - The company may not be able to offset cost increases for key inputs like raw potatoes, edible oil, labor, and energy, which could adversely affect financial results. Elevated commodity and supply chain costs continued in fiscal 2025[55][56] - Disruptions to the supply chain from factors like natural disasters, labor shortages, or geopolitical conflicts (e.g., war in Ukraine) could impair manufacturing and distribution capabilities[58][59] - International operations, which accounted for approximately 35% of net sales in fiscal 2025, are exposed to risks including foreign exchange rate fluctuations, trade barriers, and political instability[63] - Poor potato crop performance due to weather, pests, or disease can lead to insufficient supply, higher costs, and manufacturing inefficiencies. An oversupply, as seen in fiscal 2025, can lead to write-offs of excess raw potatoes[78] - The transition to a new ERP system in North America has caused and could further cause business disruptions. In fiscal 2024, the transition led to reduced visibility of finished goods inventories, affecting customer order fulfillment and resulting in declines in sales volume and margins[94] - Climate change presents risks such as decreased agricultural productivity, water scarcity impacting production, and increased compliance costs from new environmental regulations[106][107] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[112] Cybersecurity The company manages cybersecurity risks through a comprehensive program overseen by the Board's Audit Committee - The company's cybersecurity risk management program includes policies, an incident response plan, regular risk assessments, vulnerability testing, and employee training[113] - The Board of Directors has ultimate oversight of cybersecurity risk, with the Audit Committee regularly reviewing the program and reporting to the full Board[118] - The cybersecurity program is managed by an interim CISO with over 20 years of experience, who reports to the CIO. The CISO and CIO provide regular updates to the Audit Committee[119][120] - To date, the company is not aware of any cybersecurity incident that has had, or is reasonably likely to have, a material impact on its business or operations[117] Properties Lamb Weston operates 26 global production facilities, headquartered in Idaho, and recently closed a facility Principal Production and Processing Facilities (as of May 25, 2025) | Location | Type of Facility | Owned/Leased | | :--- | :--- | :--- | | Domestic (U.S.) | | | | American Falls, ID | Production & Cold Storage | Owned (1) | | Boardman, OR | Production & Cold Storage | Owned (3) | | Delhi, LA | Production, Cold Storage, Farm | Owned (1), Leased (2) | | Hermiston, OR | Production | Owned (1) | | Park Rapids, MN | Production & Cold Storage | Owned (1) (a) | | Pasco, WA | Production | Owned (2) | | Paterson, WA | Production, Farm | Owned (2), Leased (3) | | Quincy, WA | Production | Owned (1) | | Richland, WA | Production, Innovation Center | Owned (2) | | Twin Falls, ID | Production | Owned (1) | | Warden, WA | Production | Owned (1) | | International | | | | Bergen-op-Zoom, Netherlands | Production | Owned (1) | | Broekhuizenvorst, Netherlands | Production | Owned (1) | | Buenos Aires, Argentina | Production | Owned (1) | | Hallam, Australia | Production & Cold Storage | Leased (2) | | Hollabrunn, Austria | Production | Owned (1) (b) | | Kruiningen, Netherlands | Production | Owned (1) | | Oosterbierum, Netherlands | Production | Owned (1) | | Shangdu, China | Production | Owned (1) | | Taber, Canada | Production & Cold Storage | Owned (1) | | Ulanqab, China | Production & Cold Storage | Owned (1) | | Wisbech, United Kingdom | Production | Owned (1) | (a) 50% interest through Lamb Weston RDO joint venture. (b) 75% interest through a joint venture owned by LW EMEA. - As part of the FY25 Restructuring Plan announced on October 1, 2024, the company closed one of its manufacturing facilities in Connell, Washington[124] Legal Proceedings The company faces legal proceedings, including class actions related to ERP system and antitrust allegations - The company is defending against consolidated class actions and a stockholder derivative complaint alleging misrepresentations regarding its ERP system implementation and pricing practices[389] - Multiple class action complaints have been filed alleging antitrust violations, claiming the company and other producers conspired to fix prices of frozen potato products beginning around January 1, 2021[390] - Management believes the pending legal actions will not have a material adverse effect on the company's financial condition, results of operations, or cash flows[391] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[128] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Lamb Weston's common stock trades on the NYSE, with the Board increasing share repurchase authorization to $750 million - The company's common stock is listed on the NYSE under the ticker symbol "LW"[130] - The Board increased the total share repurchase authorization to $750 million in December 2024. As of May 25, 2025, approximately $358 million remained available for repurchase under the program, which has no expiration date[132] Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Programs | Approx. Dollar Value Remaining Under Programs (in millions) | | :--- | :--- | :--- | :--- | :--- | | Feb 24 - Mar 23, 2025 | 957 | $52.73 | 0 | $458 | | Mar 24 - Apr 20, 2025 | 595,178 | $54.61 | 584,451 | $426 | | Apr 21 - May 25, 2025 | 1,313,220 | $51.88 | 1,310,777 | $358 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations FY25 net sales were flat, net income declined, prompting a new strategic plan and cost savings program - The company announced a new strategic plan, "Focus to Win," and a Cost Savings Program aiming for at least $250 million in annualized savings by the end of fiscal 2028[142] Fiscal Year 2025 vs. 2024 Performance Summary | Metric (in millions) | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | | | | | North America | $4,265.2 | $4,363.2 | (2)% | | International | $2,186.1 | $2,104.4 | 4% | | Total Net Sales | $6,451.3 | $6,467.6 | —% | | Segment Adjusted EBITDA | | | | | North America | $1,101.4 | $1,263.1 | (13)% | | International | $253.7 | $331.9 | (24)% | | Total Adjusted EBITDA | $1,220.5 | $1,416.7 | (13.9)% | | Net Income | $357.2 | $725.5 | (50.8)% | | Diluted EPS | $2.50 | $4.98 | (49.8)% | - Gross profit declined to $1,398.6 million, primarily due to increased manufacturing costs per pound, higher input costs (potato, labor, packaging), and $57.6 million in incremental depreciation from capacity expansions[150] - The company recorded a $100.0 million restructuring expense related to the FY25 Restructuring Plan[152] - Cash from operations increased to $868.3 million in fiscal 2025 from $798.2 million in fiscal 2024, mainly due to favorable changes in working capital, particularly reduced inventories[161][164] - For fiscal 2026, the company expects earnings to decline due to price investments, input cost increases, and higher depreciation, partially offset by benefits from restructuring and cost savings programs[144] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, foreign currency exchange rates, and interest rates - The company is exposed to commodity price risk for inputs like oil and energy. A hypothetical 10% decline in market prices would result in a pre-tax charge of $6.8 million to cost of sales based on open hedge positions at May 25, 2025[193] - The company faces foreign currency exchange rate risk, primarily from the Euro. A hypothetical 10% adverse change in exchange rates would result in pre-tax losses of $68.5 million as of May 25, 2025[194] - The company has interest rate risk related to its $1,166.4 million of variable-rate debt. A one percent increase in interest rates would increase annual pre-tax interest expense by $11.8 million as of May 25, 2025[195] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for FY23-25 with an unqualified audit opinion Consolidated Statement of Earnings Highlights (Fiscal Year Ended May 25, 2025) | Metric (in millions) | Amount | | :--- | :--- | | Net sales | $6,451.3 | | Gross profit | $1,398.6 | | Income from operations | $665.1 | | Net income | $357.2 | | Diluted EPS | $2.50 | Consolidated Balance Sheet Highlights (As of May 25, 2025) | Metric (in millions) | Amount | | :--- | :--- | | Total Current Assets | $2,032.7 | | Total Assets | $7,392.6 | | Total Current Liabilities | $1,476.0 | | Long-Term Debt (excl. current) | $3,682.8 | | Total Liabilities | $5,654.9 | | Total Stockholders' Equity | $1,737.7 | Consolidated Statement of Cash Flows Highlights (Fiscal Year Ended May 25, 2025) | Metric (in millions) | Amount | | :--- | :--- | | Net cash provided by operating activities | $868.3 | | Net cash used for investing activities | $(648.0) | | Net cash used in financing activities | $(225.0) | - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[199][210] - A critical audit matter was identified concerning the sufficiency of audit evidence over finished goods inventory held at third-party warehouse locations, due to reliance on manual and automated processes[204][205] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure - None[393] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 25, 2025[394] - Management concluded that the company's internal control over financial reporting was effective as of May 25, 2025, based on the COSO framework[396] - There were no changes in internal control over financial reporting during the quarter ended May 25, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[400] Other Information The company announced a new Cost Savings Program targeting $250 million in annualized savings by FY28 - A new Cost Savings Program announced on July 23, 2025, is expected to deliver at least $250 million in annualized savings by the end of fiscal 2028[401] - The program will incur total pre-tax cash charges of $70 million to $100 million and involves a headcount reduction of approximately 4% of the global workforce[402] - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter ended May 25, 2025[403] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[404] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated from the Proxy Statement - This section incorporates information by reference from the company's 2025 Proxy Statement[406] Executive Compensation Information on executive compensation is incorporated by reference from the company's 2025 Proxy Statement - This section incorporates information by reference from the company's 2025 Proxy Statement[407] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides equity compensation plan information and incorporates security ownership details Equity Compensation Plan Information as of May 25, 2025 | Plan Category | Number of Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price of Outstanding Options (b) | Number of Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by securityholders | 2,081,450 | $69.72 | 5,532,480 | - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2025 Proxy Statement[409] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated from Proxy Statement - This section incorporates information by reference from the company's 2025 Proxy Statement[411] Principal Accountant Fees and Services Information on fees paid to the principal accountant and services rendered is incorporated from Proxy Statement - This section incorporates information by reference from the company's 2025 Proxy Statement[412] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including Schedule II detailing deferred tax asset valuation Schedule II – Valuation and Qualifying Accounts (Deferred tax asset valuation allowance) | Fiscal Year Ended | Beginning Balance (in millions) | Additions Charged to Costs, Expenses and Equity (in millions) | Deductions from Reserves (in millions) | Ending Balance (in millions) | | :--- | :--- | :--- | :--- | :--- | | May 25, 2025 | $53.1 | $12.6 | $— | $65.7 | | May 26, 2024 | $49.5 | $3.6 | $— | $53.1 | | May 28, 2023 | $50.1 | $— | $0.6 | $49.5 | - A list of all exhibits filed with the Form 10-K is provided, including governance documents, credit agreements, stock plans, and officer certifications[416][417][418] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[421]