Activist Jana is back in the kitchen at Lamb Weston – Here's what could happen next

Company Overview - Lamb Weston is a leading global producer and distributor of value-added frozen potato products, supplying restaurants and retailers worldwide [1] - The company ranks No. 1 in North America and No. 2 globally in the frozen potato market, benefiting from increased demand and high gross margins [4] Recent Performance - From FY17 to FY23, Lamb Weston achieved a 9% compound annual growth rate in net sales and a 10% CAGR in adjusted EBITDA, with adjusted gross margins improving by 340 basis points [6] - However, in 2024, prior to Jana Partners' involvement, the company's shares fell over 30%, contrasting with a 20% increase in the S&P 500 [6][7] Financial Challenges - In Q4 2024, Lamb Weston reported a 5% year-over-year decline in net sales and a 40% drop in adjusted EPS to 78 cents, significantly below the expected $1.26 per share [7] - The company attributed its poor performance to market share losses, reduced restaurant traffic due to inflation, and a voluntary product withdrawal [7] Capital Allocation and Operational Issues - Jana Partners has identified capital misallocation, operational blunders, and corporate governance failings as key issues for Lamb Weston [8] - The company has been spending nearly 14% of sales on capital expenditures in 2023, with projections of 12% to 13% for the next two years, raising concerns about the necessity and efficiency of this spending [8] - Lamb Weston has also seen an increase in selling, general, and administrative expenses as a percentage of net sales, which is viewed as suspicious given the revenue growth [8] Strategic Review and Board Changes - Jana Partners, in collaboration with Continental Grain, is seeking to engage with Lamb Weston on various topics, including financial performance, capital spending, and corporate governance [3] - Jana has proposed a slate of experienced industry executives for board positions to address operational and capital allocation issues [9] Potential for Strategic Transactions - There is speculation about a potential transaction involving Post Holdings, which could lead to a takeout offer exceeding $100 per share, contingent on the board's evaluation of shareholder value versus long-term operational plans [10]