Lamb Weston(LW) - 2026 Q1 - Quarterly Results

Executive Summary & Outlook Reaffirmation First Quarter Fiscal 2026 Highlights Lamb Weston reported a strong start to fiscal year 2026 with solid volume growth and positive customer momentum, driven by its 'Focus to Win' strategy, with adjusted income from operations and adjusted EBITDA showing modest growth despite declines in GAAP net income and EPS Q1 2026 Key Financial Highlights (YoY) | Metric | Q1 2026 ($ millions) | Year-Over-Year Growth | | :----------------------------- | :------------------- | :-------------------- | | Net sales | 1,659.3 | — % | | Income from operations | 156.5 | (26)% | | Net income | 64.3 | (50)% | | Diluted EPS | 0.46 | (48)% | | Adjusted Income from Operations | 206.5 | 5 % | | Adjusted Net Income | 103.0 | (9)% | | Adjusted Diluted EPS | 0.74 | (5)% | | Adjusted EBITDA | 302.2 | 1 % | | Capital returned to shareholders | 62.1 | | - CEO Mike Smith noted a strong start to the fiscal year with solid volume growth and positive customer momentum, attributing it to the 'Focus to Win' strategy[3] Fiscal Year 2026 Outlook Reaffirmation Lamb Weston reaffirmed its full-year financial targets for fiscal 2026, indicating confidence in its strategic direction and operational execution - Lamb Weston reaffirmed its full year financial targets for fiscal 2026[1] First Quarter Fiscal 2026 Financial Performance Consolidated Results of Operations Consolidated net sales saw a slight year-over-year increase, primarily due to favorable foreign currency, though constant currency sales declined, while profitability metrics experienced declines largely influenced by unfavorable price/mix and a higher effective tax rate, partially offset by cost savings and higher volumes Q1 2026 Consolidated Financial Performance (YoY) | Metric | Q1 2026 ($ millions) | YoY Change ($ millions) | YoY % Change | | :----------------------------- | :------------------- | :---------------------- | :----------- | | Net sales | 1,659.3 | +5.2 | — % | | Net sales (constant currency) | 1,635.6 | -1% | -1% | | Gross profit | 342.4 | (13.6) | -3.8% | | Adjusted Gross Profit | 338.9 | (14.2) | -4.0% | | SG&A | 153.6 | +9.7 | +6.7% | | Adjusted SG&A | 132.4 | (24.0) | -15.3% | | Net income | 64.3 | (63.1) | (50)% | | Diluted EPS | 0.46 | (0.42) | (48)% | | Adjusted Net Income | 103.0 | (9.7) | (9)% | | Adjusted Diluted EPS | 0.74 | (0.04) | (5)% | | Adjusted EBITDA | 302.2 | +2.8 | 1 % | - Volume growth of 6% was driven by customer wins and retention, particularly in North America and Asia, and lapping an approximately $15 million charge in the prior year quarter related to a voluntary product withdrawal[4] - Price/mix declined 7%, reflecting the carryover impact of fiscal 2025 price and trade investments, ongoing price and trade support, and unfavorable channel product mix[4] Net Sales Analysis Net sales increased slightly by $5.2 million to $1,659.3 million, primarily due to a favorable foreign currency impact of $23.7 million, while at constant currency, net sales declined 1% as a 6% volume increase was more than offset by a 7% price/mix decline - Net sales increased $5.2 million to $1,659.3 million, including a favorable foreign currency impact of $23.7 million[4] - Net sales at constant currency declined 1%, as a 6% increase in volume was more than offset by a 7% decline in price/mix[4] Profitability Metrics (Gross Profit, SG&A, Net Income, EPS, EBITDA) Gross profit and adjusted gross profit declined due to unfavorable price/mix, partially mitigated by higher sales volumes and lower manufacturing costs, while SG&A increased but adjusted SG&A decreased due to cost savings and miscellaneous income, and net income and diluted EPS saw significant declines, while Adjusted EBITDA increased slightly due to lower Adjusted SG&A - Gross profit declined $13.6 million to $342.4 million, and Adjusted Gross Profit declined $14.2 million to $338.9 million, primarily due to unfavorable price/mix, partially offset by higher sales volumes and lower manufacturing costs[5] - SG&A increased $9.7 million to $153.6 million, but Adjusted SG&A declined $24.0 million to $132.4 million, reflecting cost savings initiatives and $7.3 million of miscellaneous income[5] - Net income declined $63.1 million to $64.3 million, and Diluted EPS declined $0.42 to $0.46, while Adjusted Net Income declined $9.7 million to $103.0 million, and Adjusted Diluted EPS declined $0.04 to $0.74[5] Effective Tax Rate The effective tax rate for Q1 2026 was 42.7%, significantly higher than 28.5% in Q1 2025, primarily due to a $10.2 million discrete tax expense related to a non-cash full valuation allowance against certain international deferred tax assets, with the rate being 30.2% versus 30.8% in the prior year when excluding these items - The effective tax rate in Q1 2026 was 42.7%, compared to 28.5% in Q1 2025, including $10.2 million of discrete tax expense primarily for a valuation allowance against international deferred tax assets[5] - Excluding these items, the effective tax rate was 30.2% in Q1 2026, versus 30.8% in the prior year quarter[5] Segment Performance The North America segment experienced a decline in net sales and Adjusted EBITDA due to price/mix pressures despite volume growth, while the International segment saw an increase in net sales driven by foreign currency and an improvement in Adjusted EBITDA, benefiting from higher volumes and lower costs even with new facility start-up expenses Q1 2026 Segment Performance (YoY) | Segment | Net Sales Q1 2026 ($ millions) | Net Sales YoY % Change | Net Sales Constant Currency YoY % Change | Volume YoY % Change | Price/Mix YoY % Change | Adjusted EBITDA Q1 2026 ($ millions) | Adjusted EBITDA YoY % Change | | :-------------- | :----------------------------- | :--------------------- | :--------------------------------------- | :------------------ | :--------------------- | :----------------------------------- | :--------------------------- | | North America | 1,084.6 | (2%) | (2%) | 5% | (7%) | 260.0 | (6%) | | International | 574.7 | 4% | —% | 6% | (6%) | 57.2 | 11% | North America Segment North America net sales declined 2% to $1,084.6 million, as a 7% price/mix decline more than offset a 5% volume increase, while Adjusted EBITDA decreased 6% to $260.0 million, primarily reflecting price and trade support partially offset by higher volumes and cost savings - North America net sales declined 2% to $1,084.6 million, with volume increasing 5% and price/mix declining 7%[6] - Volume growth was supported by recent customer contract wins and growth across channels, while price/mix declined due to fiscal 2025 price investments, ongoing customer support, and unfavorable channel mix[6] - North America Segment Adjusted EBITDA decreased $18.0 million to $260.0 million, primarily reflecting price and trade in support of customers, partially offset by higher sales volumes, lower manufacturing costs, and cost savings initiatives[7] International Segment International net sales increased 4% to $574.7 million, including a $24.5 million favorable foreign currency impact, resulting in flat net sales at constant currency, with volume increasing 6% and price/mix declining 6%, while Adjusted EBITDA increased 11% to $57.2 million, driven by higher volumes, lower potato prices, and cost savings despite $3.5 million in start-up costs for a new Argentina facility - International net sales increased 4% to $574.7 million, including a favorable $24.5 million from foreign currency translation, with net sales at constant currency being flat[8] - Volume increased 6%, led primarily by growth in Asia and with multinational chain customers, while price/mix at constant currency declined 6%[8] - International Segment Adjusted EBITDA increased $5.8 million to $57.2 million, reflecting higher sales volumes and lower manufacturing costs per pound, partially offset by $3.5 million in start-up costs for the new Argentina facility[8] Equity Method Investment Earnings (Loss) Equity method investment earnings shifted from a gain of $11.3 million in Q1 2025 to a loss of $0.6 million in Q1 2026, primarily due to lower net sales and an unfavorable mix of sales from the Lamb Weston/RDO Frozen joint venture Equity Method Investment Earnings (Loss) | Period | Earnings (Loss) ($ millions) | | :------------------- | :--------------------------- | | Q1 Fiscal 2026 | (0.6) | | Q1 Fiscal 2025 | 11.3 | - The decline in earnings was primarily the result of lower net sales and an unfavorable mix of sales from the unconsolidated joint venture, Lamb Weston/RDO Frozen[9] Financial Position and Cash Flows Cash Flows from Operating Activities Net cash provided by operating activities increased by $21.8 million to $352.0 million, primarily reflecting favorable working capital, led by lower finished goods inventories in North America - Net cash provided by operating activities increased $21.8 million to $352.0 million, primarily reflecting favorable working capital, led by lower finished goods inventories in North America[10] Capital Expenditures and Liquidity Capital expenditures significantly decreased by $256.4 million to $79.2 million, reflecting the completion of growth-based investments in Argentina, the Netherlands, and the U.S., while the company maintained strong liquidity with $98.6 million in cash and $1,318.4 million available under its revolving credit facility - Capital expenditures, net of proceeds from blue chip swap transactions, were $79.2 million, down $256.4 million from the prior year, reflecting the completion of growth-based investments[11] Liquidity as of August 24, 2025 | Metric | Amount ($ millions) | | :-------------------------- | :------------------ | | Cash and cash equivalents | 98.6 | | Available revolving credit | 1,318.4 | Capital Returned to Shareholders In the first quarter of fiscal 2026, Lamb Weston returned $62.1 million to shareholders, comprising $51.7 million in cash dividends and $10.4 million in share repurchases (187,259 shares at an average price of $55.34), while the Board also declared a quarterly dividend of $0.37 per share payable in November 2025, and approximately $348 million remains authorized for share repurchases - The Company returned $62.1 million to shareholders in Q1 FY26, including $51.7 million through cash dividends and $10.4 million through share repurchases (187,259 shares at an average price of $55.34)[2][12] - The Board of Directors declared a quarterly dividend of $0.37 per share, payable on November 28, 2025, with approximately $348 million remaining authorized and available for repurchase under the share repurchase program[12][13] Strategic Initiatives and Fiscal 2026 Outlook Focus to Win Strategy The 'Focus to Win' strategy, announced in Q4 fiscal 2025, aims to improve execution and drive profitable growth through four guiding principles: focusing investments on priority global markets, strengthening customer partnerships, achieving executional excellence, and setting the pace for innovation, including a Cost Savings Program targeting at least $250 million in annualized run rate savings by end of FY28, with $100 million expected by end of FY26, plus $60 million in working capital improvements, and total pre-tax charges of $70-100 million are expected, with $32 million recorded in Q1 FY26 - The 'Focus to Win' strategic plan aligns the organization around four guiding principles: focusing investments on priority global markets and segments; strengthening customer partnerships; achieving executional excellence; and setting the pace for innovation[14] - The Cost Savings Program is expected to deliver at least $250 million of annualized run rate savings by the end of fiscal year 2028, with at least $100 million of expected savings and an additional $60 million of working capital improvements by the end of fiscal year 2026[14] - In connection with these strategic initiatives, the Company expects to recognize total pre-tax charges of $70 million to $100 million, including approximately $32 million recorded in the first fiscal quarter[14] Fiscal 2026 Financial Targets Lamb Weston reaffirmed its fiscal 2026 financial targets, including net sales at constant currency in the range of $6.35 billion to $6.55 billion, Adjusted EBITDA between $1.00 billion and $1.20 billion, and capital expenditures of approximately $500 million, with the guidance incorporating enacted tariffs but excluding potential effects of evolving trade policies Fiscal 2026 Financial Targets | Metric | Target Range | | :-------------------------------- | :-------------------------------- | | Net sales at constant currency | $6.35 billion to $6.55 billion | | Adjusted EBITDA | $1.00 billion to $1.20 billion | | Cash used for capital expenditures | Approximately $500 million | - The Company's guidance includes its current view of the anticipated impact of enacted tariffs but does not include potential effects of evolving trade policies[15] Additional Information Webcast and Conference Call Information Lamb Weston hosted a conference call on September 30, 2025, to discuss its first quarter fiscal 2026 results, with details provided for live access and a rebroadcast - Lamb Weston hosted a conference call to review its first quarter fiscal 2026 results at 10:00 a.m. ET on September 30, 2025, with a rebroadcast available online[17][18] About Lamb Weston Lamb Weston is a leading global supplier of frozen potato products to restaurants and retailers, known for 75 years of innovation in simplifying back-of-house management and enhancing customer experience - Lamb Weston is a leading supplier of frozen potato products to restaurants and retailers around the world, with 75 years of industry leadership in innovation[19] Non-GAAP Financial Measures The company utilizes various non-GAAP financial measures (e.g., Adjusted Gross Profit, Adjusted EBITDA, constant currency metrics) to supplement GAAP information, providing useful insights into core operating performance for investors and management decision-making by excluding certain non-recurring or non-operational impacts, with reconciliations to comparable GAAP measures provided and limitations of non-GAAP measures acknowledged - Lamb Weston presents non-GAAP financial measures such as Adjusted Gross Profit, Adjusted SG&A, Adjusted Income from Operations, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, and constant currency metrics to supplement GAAP financial information[20] - Management uses these non-GAAP measures to analyze core operating performance, providing investors with useful supplemental information by excluding impacts of foreign currency exchange translation, unrealized derivative activities, and other items affecting comparability[21] - Prospective quantification of certain unpredictable items for forward-looking non-GAAP measures is not feasible without unreasonable efforts, thus a reconciliation to GAAP has not been provided for guidance[24] Forward-Looking Statements This section contains forward-looking statements regarding the company's outlook, strategies, capital expenditures, and industry conditions, which are subject to uncertainties and risks, with readers cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them, except as required by law, with key risks including consumer preferences, raw material availability, operational challenges, successful implementation of strategic plans, competitive environment, and global economic conditions - The press release contains forward-looking statements regarding the Company's business and financial outlook, plans and strategies (including Focus to Win and the Cost Savings Program), capital expenditures, and anticipated industry conditions[25] - These statements are based on management's current expectations and are subject to uncertainties and changes in circumstances, with many factors potentially causing actual results to vary materially[25] - Readers are cautioned not to place undue reliance on any forward-looking statements, and the Company undertakes no responsibility for updating these statements, except as required by law[25] Consolidated Financial Statements Consolidated Statements of Earnings The consolidated statements of earnings provide a detailed breakdown of revenues, costs, and profits for the thirteen weeks ended August 24, 2025, and August 25, 2024, highlighting significant year-over-year declines in net income and diluted EPS, influenced by restructuring expenses and a higher tax rate in the current period Consolidated Statements of Earnings (Thirteen Weeks Ended) | Metric | August 24, 2025 ($ millions) | August 25, 2024 ($ millions) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net sales | 1,659.3 | 1,654.1 | | Cost of sales | 1,316.9 | 1,298.1 | | Gross profit | 342.4 | 356.0 | | Selling, general and administrative expenses | 153.6 | 143.9 | | Restructuring expense | 32.3 | — | | Income from operations | 156.5 | 212.1 | | Interest expense, net | 43.7 | 45.2 | | Income before income taxes and equity method earnings | 112.8 | 166.9 | | Income tax expense | 47.9 | 50.8 | | Equity method investment earnings (loss) | (0.6) | 11.3 | | Net income | 64.3 | 127.4 | | Diluted EPS | 0.46 | 0.88 | | Dividends declared per common share | 0.37 | 0.36 | - Net income for the thirteen weeks ended August 24, 2025, reflects total pre-tax cash charges totaling $31.9 million ($24.2 million after-tax, or $0.18 per share) primarily related to the Cost Savings Program[27] - The thirteen weeks ended August 25, 2024, included an approximately $39 million charge ($30 million after-tax, or $0.21 per share) related to a voluntary product withdrawal, impacting net sales and cost of sales[29] Consolidated Balance Sheets The consolidated balance sheets present the company's financial position as of August 24, 2025, and May 25, 2025, with key changes including a decrease in total current assets, primarily driven by lower inventories, and a slight increase in total stockholders' equity Consolidated Balance Sheets (as of) | Metric | August 24, 2025 ($ millions) | May 25, 2025 ($ millions) | | :------------------------------------------ | :--------------------------- | :-------------------------- | | ASSETS: | | | | Cash and cash equivalents | 98.6 | 70.7 | | Receivables, net | 772.7 | 781.6 | | Inventories | 906.8 | 1,035.4 | | Total current assets | 1,873.3 | 2,032.7 | | Property, plant and equipment, net | 3,686.7 | 3,687.9 | | Total assets | 7,236.7 | 7,392.6 | | LIABILITIES & STOCKHOLDERS' EQUITY: | | | | Short-term borrowings | 215.4 | 370.8 | | Accounts payable | 544.9 | 616.4 | | Total current liabilities | 1,258.0 | 1,476.0 | | Long-term debt and financing obligations | 3,670.9 | 3,682.8 | | Total liabilities | 5,446.9 | 5,654.9 | | Total stockholders' equity | 1,789.8 | 1,737.7 | | Total liabilities and stockholders' equity | 7,236.7 | 7,392.6 | - Inventories decreased from $1,035.4 million as of May 25, 2025, to $906.8 million as of August 24, 2025[31] - Total stockholders' equity increased from $1,737.7 million to $1,789.8 million[31] Consolidated Statements of Cash Flows The consolidated statements of cash flows detail the cash movements for the thirteen weeks ended August 24, 2025, and August 25, 2024, with operating activities generating more cash, while investing activities used significantly less cash due to completed capital projects, and financing activities shifted from providing cash to using cash, primarily due to higher net repayments of short-term borrowings Consolidated Statements of Cash Flows (Thirteen Weeks Ended) | Cash Flow Activity | August 24, 2025 ($ millions) | August 25, 2024 ($ millions) | | :------------------------------------ | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | 352.0 | 330.2 | | Net cash used for investing activities | (76.3) | (335.6) | | Net cash (used for) provided by financing activities | (248.5) | 52.2 | | Net increase in cash and cash equivalents | 27.9 | 49.4 | | Cash and cash equivalents, end of period | 98.6 | 120.8 | - Net cash provided by operating activities increased by $21.8 million, primarily reflecting favorable working capital, led by lower finished goods inventories[10][33] - Net cash used for investing activities decreased substantially from $335.6 million in Q1 FY25 to $76.3 million in Q1 FY26, reflecting the completion of growth-based investments[11][33] - Net cash from financing activities shifted from a $52.2 million inflow in Q1 FY25 to a $248.5 million outflow in Q1 FY26, primarily due to higher net repayments of short-term borrowings[33] Segment Information and Non-GAAP Reconciliations Segment Net Sales and Adjusted EBITDA This section provides a detailed breakdown of net sales and Adjusted EBITDA by segment (North America and International) for Q1 fiscal 2026 and 2025, including constant currency adjustments, highlighting the differing drivers of performance in each segment, with North America experiencing price/mix pressure and International benefiting from volume growth and foreign currency Segment Net Sales and Adjusted EBITDA (Thirteen Weeks Ended) | Metric | August 24, 2025 ($ millions) | August 25, 2024 ($ millions) | % Increase (Decrease) | % Increase (Decrease) at Constant Currency | Price/Mix | Volume | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :----------------------------------------- | :-------- | :------- | | Segment net sales: | | | | | | | | North America | 1,084.6 | 1,103.7 | (2%) | (2%) | (7%) | 5% | | International | 574.7 | 550.4 | 4% | —% | (6%) | 6% | | Total Net Sales | 1,659.3 | 1,654.1 | —% | (1%) | (7%) | 6% | | Segment Adjusted EBITDA: | | | | | | | | North America | 260.0 | 278.0 | (6%) | (6%) | | | | International | 57.2 | 51.4 | 11% | 4% | | | | Total Adjusted EBITDA | 317.2 | 329.4 | | | | | - Foreign currency translation had a minimal impact on overall Segment Adjusted EBITDA, with a favorable impact of approximately $4 million to the International segment[36] Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations of various GAAP financial measures to their non-GAAP counterparts, including Adjusted Gross Profit, SG&A, Income from Operations, Net Income, Diluted EPS, and Adjusted EBITDA, itemizing adjustments for unrealized derivative gains/losses, foreign currency, stock-based compensation, and specific items impacting comparability like the Cost Savings Program and pension settlement - Reconciliations are provided for Adjusted Gross Profit, Adjusted SG&A, Adjusted Income from Operations, Adjusted Net Income, and Adjusted Diluted EPS, detailing adjustments for unrealized derivative gains, foreign currency exchange, stock-based compensation, and specific comparability items[39] - Adjusted EBITDA is reconciled from Net Income by adding back interest expense, income tax expense, depreciation and amortization, and adjusting for unrealized derivative gains/losses, foreign currency exchange, blue chip swap transactions, stock-based compensation, and other comparability items[44][45] Adjusted Gross Profit, SG&A, Income from Operations, Net Income, EPS Reconciliation This sub-section details the adjustments made to GAAP figures to arrive at adjusted non-GAAP measures for gross profit, SG&A, income from operations, net income, and diluted EPS for both Q1 FY26 and Q1 FY25, with key adjustments in Q1 FY26 including restructuring expense, shareholder activism expense, and pension settlement charges Reconciliation of GAAP to Adjusted Financial Measures (Q1 FY26) | Metric | As Reported ($ millions) | Total Adjustments ($ millions) | Adjusted ($ millions) | | :----------------------------- | :----------------------- | :----------------------------- | :-------------------- | | Gross Profit | 342.4 | (3.5) | 338.9 | | SG&A | 153.6 | (21.2) | 132.4 | | Restructuring Expense | 32.3 | (32.3) | — | | Income From Operations | 156.5 | 50.0 | 206.5 | | Net Income | 64.3 | 38.7 | 103.0 | | Diluted EPS | 0.46 | 0.28 | 0.74 | - Adjustments for Q1 FY26 include $32.3 million for restructuring expense, $4.0 million for shareholder activism expense, and $13.1 million for pension settlement, which significantly impact reported GAAP figures[39] Adjusted EBITDA Reconciliation This sub-section provides the reconciliation of net income to Adjusted EBITDA, a key non-GAAP measure, for Q1 FY26 and Q1 FY25, detailing the add-backs for interest, taxes, depreciation, amortization, and other non-operating or non-recurring items to arrive at the adjusted profitability metric Reconciliation of Net Income to Adjusted EBITDA | Metric | August 24, 2025 ($ millions) | August 25, 2024 ($ millions) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net income | 64.3 | 127.4 | | Interest expense, net | 43.7 | 45.2 | | Income tax expense | 47.9 | 50.8 | | Depreciation and amortization | 96.3 | 91.4 | | Unrealized derivative gains | (4.9) | (8.9) | | Foreign currency exchange (gains) losses | (4.7) | 0.6 | | Blue chip swap transaction gains | — | (16.6) | | Stock-based compensation | 10.6 | 9.5 | | Cost Savings Program, Restructuring Plan, and other expenses | 31.9 | — | | Shareholder activism expense | 4.0 | — | | Pension settlement | 13.1 | — | | Adjusted EBITDA | 302.2 | 299.4 | - Adjusted EBITDA increased from $299.4 million in Q1 FY25 to $302.2 million in Q1 FY26, after accounting for various non-GAAP adjustments[45] - Unallocated corporate costs, which are excluded from Segment Adjusted EBITDA, were ($15.0) million in Q1 FY26, compared to ($30.0) million in Q1 FY25[45]