Lamb Weston Holdings, Inc. Q2 FY2025 earnings call

• Leadership change: Tom Werner to step down as CEO, Mike Smith to become President and CEO effective Jan 3, 2025, after a year-long succession planning. • Second quarter performance: Net sales down 8%, volume down 6%, price-mix down 2%, adjusted EBITDA fell $95 million. • Industry capacity: Competitors announced significant capacity expansions, leading to expected industry capacity to reach over 44 billion pounds by 2028, impacting utilization. • Restructuring plan: On track to deliver $55 million in cost savings in fiscal 2025 and $85 million annualized in fiscal 2026, with continued evaluation of supply chain and support function adjustments.

North America segment: Sales declined 8% versus the prior year quarter, volume declined 5%, and adjusted EBITDA declined $55 million to $267 million. International segment: Sales declined 6% versus the prior year quarter, volume declined 6%, and adjusted EBITDA declined $53 million to $47 million. Net sales overall declined 8% compared with the year ago quarter, volume declined 6%, price-mix declined 2%, adjusted EBITDA fell $95 million versus the prior year quarter to $282 million.

• Reduced financial targets: Net sales range revised to $6.35 billion to $6.45 billion from $6.6 billion to $6.8 billion; adjusted EBITDA range revised to $1.17 billion to $1.21 billion from ~$1.38 billion. • Capital expenditures: Target $750 million in fiscal 2025, focusing on maintenance, modernization, and environmental projects; target $550 million in fiscal 2026. • Share repurchase: Increased authorization by $250 million, remaining ~$560 million; dividend increased by $0.01 to $0.37 per share.

• Challenging operating environment with weak restaurant traffic, competitive landscape, and additional capacity expansions. • Potential for competitors not taking similar actions to curtail production, continuing the imbalance in supply and demand.

Q: Andrew Lazar asked about normalized EBITDA margin and why other players haven't curbed production.

A: Tom Werner stated expected EBITDA margins in the range of 19% to 20%, and Bernadette Madarieta added that the rest of the industry is evaluating dynamics.

Q: Peter Galbo asked about Europe and Asia markets' pressure.

A: Tom Werner discussed Europe's crop recovery and Asia's competitive share pressure.

Q: Tom Palmer asked about customer losses and share repurchase.

A: Bernadette Madarieta said customer losses are due to competitive environment, and share repurchase will be opportunistic.

Q: Ken Goldman asked about Board changes and guidance.

A: Tom Werner focused on earnings and transition, Bernadette Madarieta mentioned incremental volume from customer wins.

Q: Rob Dickerson asked about capacity drivers and CapEx.

A: Tom Werner discussed industry capacity drivers and Bernadette Madarieta confirmed comfort with CapEx.

Q: Alexia Howard asked about demand and non-traditional customers.

A: Bernadette Madarieta talked about U.S. and international demand, Tom Werner noted steady fry attachment rates.

Q: Steve Powers asked about utilization and sales pitch.

A: Tom Werner discussed utilization improvement and sales pitch including price, product, and innovation.

Q: Max Gumport asked about normalized EBITDA margin.

A: Bernadette Madarieta said short to medium-term pressures continue but expect 19%-20% margins.

Q: Matt Smith asked about utilization and traffic.

A: Tom Werner said utilization improvement is from plant efficiency, not just traffic.

Q: Marc Torrente asked about inventory and production.

A: Bernadette Madarieta talked about inventory peaks in Q2/Q3.

Q: Carla Casella asked about leverage.

A: Bernadette Madarieta said leverage target remains 3.5 times.