Lamb Weston (LW) Earnings & Analysis

Latest quarter

Lamb Weston reported Q1 FY2027 revenue of $1.7 billion, 0.98% above the consensus, although both figures round to $1.7 billion. Adjusted earnings per share were $0.75, above the consensus estimate of $0.59. Reported diluted EPS fell to $0.21 from $0.46 a year earlier.

The company’s filing attributed its sales increase to volume growth offset by lower price and product mix. North American sales rose 5%, with volume up 7% as Lamb Weston gained customers and sold more to existing ones. International sales fell 8%, and segment adjusted EBITDA declined to $26.5 million as lower volumes, mostly in Europe, and higher manufacturing costs weighed on results.

Gross margin fell to 16.0% from 20.6% a year earlier. The filing attributed the decline in adjusted gross profit partly to unfavorable price and mix and higher manufacturing costs per pound. Free cash flow fell to $143.8 million from $272.8 million; the filing said the prior-year quarter’s operating cash flow benefited from an improvement in inventories.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Mike Smith said North American volume growth reflected new customers, expanded business with existing customers and Lamb Weston’s exposure to chicken-focused quick-service restaurants. CFO Jim Gray said the company’s sales outperformed restaurant traffic trends, while its international business faced competitive pricing in Europe, the Middle East and Africa.

Asked how Lamb Weston was winning business, Smith pointed to more frequent customer engagement, joint planning, improved supply and product innovation. Gray said he expected North American volume growth to moderate over the rest of the year as the company lapped earlier customer wins. He also expected price and mix to become less of a headwind and potentially contribute to sales.

Smith said about 70% of contracts up for renewal this year had been completed, with pricing reflecting inflation. In response to questions about pricing, he said some large restaurant agreements included formula-based clauses that allow costs to be passed through. Gray said the company’s annual expectation for non-potato input inflation was about 100 basis points higher, citing freight, edible oils, packaging and ingredients; he said cost savings and, where accepted, pricing would address the increases.

On Europe, Smith said heat and dry conditions had reduced crop yield and quality. He said Lamb Weston had raised prices, expected sufficient contracted potato supply and was working with customers to adjust product specifications. The company had stopped production at its Brookheisenvorst facility and moved customer fulfillment to other locations, Smith said.

Smith said Lamb Weston was simplifying its organization, consolidating China and Asia Pacific into one region and seeking a successor to international president Marc Schroeder. Asked about savings from the changes, he said implementation timelines and local requirements varied, so the company would not disclose a specific number or dollar figure. For the next quarter, Gray said Lamb Weston expected sales to rise by low single digits and adjusted EBITDA to grow by high single digits to low double digits.

Guidance

Lamb Weston raised its FY2027 net sales outlook to low-single-digit growth from flat to 1% growth. It also raised its adjusted EPS outlook to $3.05–$3.35 from $2.95 to $3.25, and its adjusted EBITDA outlook to $1,125,000,000 to $1,215,000,000.

CFO Jim Gray said the adjusted operating income target increased to $730 million to $810 million. He also gave updated guidance for interest expense of $185 to $190 million and an adjusted tax rate of 25 to 27%.