Lamb Weston(US:LW)2025-12-19 16:02Financial Data and Key Metrics Changes - Second quarter net sales increased by 1%, with a $24 million benefit from foreign currency translation, while on a constant currency basis, net sales were essentially flat compared to last year [14] - Volume rose by 8% in the second quarter, driven by customer wins and share gains, despite softer restaurant traffic [14] - Adjusted EBITDA declined by $9 million year-over-year to $286 million, primarily due to unfavorable Price/Mix [17] - Adjusted Gross Profit decreased by $16 million year-over-year, mainly due to unfavorable Price/Mix [17] - Free cash flow was strong at $375 million, with capital expenditures down to $156 million in the first half, reflecting disciplined investment [22][23] Business Line Data and Key Metrics Changes - North America segment net sales were essentially flat compared to the prior year, with volume increasing by 8% supported by recent customer contract wins [15] - International segment net sales increased by 4%, including a favorable foreign currency impact of $23 million, but declined by 1% on a constant currency basis [15][16] - Adjusted EBITDA in the North America segment increased by 7% to $288 million, reflecting strong execution and higher sales volume [20] - Adjusted EBITDA in the International segment declined by $21 million to $27 million, impacted by price and trade to support customers and higher manufacturing costs [20] Market Data and Key Metrics Changes - In North America, QSR traffic was flat, with QSR chicken growing while QSR burger traffic was down by 3% [14] - Internationally, restaurant traffic in most markets declined, including a 3% decrease in the U.K., the largest international market [14] - Asia, including China, led volume growth in the quarter, with growth also seen with multinational chain customers [16] Company Strategy and Development Direction - The company is executing its "Focus to Win" strategy, focusing on strengthening customer partnerships and driving cost savings [4][7] - The company is reopening previously curtailed capacity in North America to meet customer demand and maintain high fill rates [4][9] - The company is building a culture of continuous improvement and reducing volatility through customer contracting and raw procurement strategies [5][6] - The company is investing in innovation, including the launch of new products like Snap Fries, to capture additional market opportunities [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a dynamic macroeconomic and competitive environment, particularly in international markets, but expressed confidence in long-term profitable growth [6][24] - The company expects continued volume growth and strong sales momentum for the remainder of the fiscal year, particularly in North America [24] - Price/Mix is anticipated to remain unfavorable in the second half, but to a lesser extent than in the first half [24][25] - Management remains committed to returning cash to shareholders, with a 3% increase in the quarterly dividend [7][23] Other Important Information - The company ended the quarter with approximately $1.43 billion of liquidity, including $1.35 billion available under its revolving credit facility [22] - The company has repurchased $40 million of shares during the second quarter and has $308 million remaining under its current repurchase authorization [23] Q&A Session Summary Question: Regarding rebalancing supply and demand in Europe - Management confirmed that they are curtailing a single line in the European market while reopening curtailed lines in North America due to strong volume [33] Question: On North America volume drivers and seasonal uptick - Management indicated that the mix shift towards private label and multinational chain customers will continue to affect gross margins in the back half of the year [36] Question: Update on Asia export markets and competition - Management acknowledged increased competition in Asia but expressed confidence in future growth due to strong customer support [42] Question: Clarification on gross margin expectations for the second half - Management confirmed that gross margins are expected to be flat to down in the second half, primarily due to mix shifts and ramp-up costs in Argentina [46] Question: Impact of reopening capacity in North America - Management stated that reopening additional capacity is necessary to meet customer expectations and will not negatively impact profitability [57] Question: Capital allocation and share repurchases - Management reiterated their commitment to capital allocation priorities, including opportunistic share repurchases while investing in the business [110]