Lamb Weston(US:LW)2023-01-05 18:02Financial Data and Key Metrics Changes - The company reported record sales of nearly $1.3 billion, reflecting a 27% increase year-over-year, driven by a 30% increase in price/mix [32][53] - Gross profit increased by $176 million to $382 million, with gross margin expanding by 950 basis points year-over-year to nearly 30% [56] - Adjusted net income is targeted between $540 million to $580 million, up from a previous target of $360 million to $410 million [74] Business Line Data and Key Metrics Changes - Sales in the Global segment increased by 34%, with a 31% rise in price/mix, leading to a doubling of the product contribution margin to $171 million [62] - The Foodservice segment saw a 14% sales growth, driven by a 25% increase in price/mix, but volumes decreased by 11% due to production constraints [63][64] - Retail segment sales rose by 34%, with a 43% increase in price/mix, while volumes fell by 9% due to production constraints [66] Market Data and Key Metrics Changes - Overall French fry demand in the U.S. remained solid, with QSR traffic up year-over-year, while casual dining and full-service restaurant traffic declined [34][35] - The fry attachment rate in QSRs increased compared to the prior year, stabilizing fry demand [36] - Retail fry demand remained strong as consumers shifted spending from dining out to home consumption [44] Company Strategy and Development Direction - The company is focused on enhancing its customer-centric operating model and pursuing global growth strategies without the restrictions of the joint venture [42] - Investments are being made to expand processing capacity in Idaho, China, and Argentina to support future growth [46] - The company aims to drive pricing actions across its portfolio to counter input cost inflation while improving product mix [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the category and the company's positioning for future growth despite ongoing supply chain challenges [36][51] - The company anticipates continued volatility in restaurant traffic demand through fiscal 2023 due to macroeconomic factors [36][73] - Management expects to see double-digit inflation for the remainder of the year, particularly in key inputs like potatoes and edible oils [88] Other Important Information - The company has secured additional potatoes from various regions to meet production needs, which will increase costs for the remainder of fiscal 2023 [48] - A 14% increase in the quarterly dividend was approved, reflecting confidence in the company's long-term growth prospects [71] Q&A Session Summary Question: Inflation outlook and its impact - Management expects double-digit inflation to continue for the remainder of the year, driven by higher costs for potatoes and other key inputs [88] Question: Return to normal earnings in Europe - The European business has made significant progress, and run-rates are trending positively, with expectations for continued improvement in the second half of the year [92] Question: Sourcing potatoes from the East Coast - The company has improved its potato sourcing strategy, although costs remain high due to transportation and quality issues [97] Question: Gross margin expectations for the back half of the year - Management anticipates a sequential increase in gross margin in Q3, but not as pronounced as historically, with a step down expected in Q4 [100] Question: Contract renewals and pricing - The company successfully pulled forward contract renewals, which should support strong pricing in the back half of the year [110]