Lamb Weston Holdings, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Mike Smith emphasized the company's focus on change, engaging AlixPartners for value creation, with over 30 projects underway including logistics optimization and exiting surplus warehouse space. Bernadette Madarieta highlighted net sales up 4%, volume up 9%, adjusted EBITDA up $20 million to $364 million, and progress on liquidity, capital expenditures, and returning cash to shareholders.
• Operational highlights: New product launches in North America (battered/seasoned products, fridge-friendly fries/tots) and International (reimagined classic fry, 3-sided Frenzy Fries); contract negotiations for potato crops in North America nearly complete, with expected mid-single-digit price decline; steps to rationalize capacity by closing Connell, Washington plant and curtailing lines.

Segment Performance

• North America: Net sales grew 4% compared to prior year. Volume improved 8%, including fully replacing volume lost in the prior year due to ERP transition and recent customer wins, offset by soft restaurant traffic. Price/mix declined 4% due to planned price and trade investments, but favorable mix from replacing higher-margin regional, small, and retail customers. Adjusted EBITDA increased $15 million to $301 million.
• International: Sales grew 5% versus prior year quarter. Volume increased 12% driven by recent customer contract wins and lapping unfilled orders in the prior year. Price/mix down 7% (4% on constant currency) due to competitive pricing and foreign currency rates. Adjusted EBITDA declined $8.5 million to $93 million.

Guidance

• Fiscal 2025 net sales expected to be in the range of $6.35 billion to $6.45 billion. International volume to increase mid- to high single-digit, North America volume to slightly decline. Adjusted EBITDA expected to be $1.17 billion to $1.21 billion. Adjusted SG&A expected $665 million to $675 million. Full year effective tax rate ~28%.
• Capital expenditures: FY 2025 target $750 million, reduced from last year, with potential push into FY 2026. Share repurchases: $100 million of shares repurchased in the quarter, leaving $458 million available; $51 million in cash dividends returned to shareholders.

Risks

• Macro-economic uncertainty affecting consumer spending and restaurant traffic. Tariffs and potential retaliatory tariffs impacting exports. Industry capacity additions and their impact on market balance. Uncertainty in potato crop price negotiations and input cost inflation (e.g., edible oils, packaging).

Question and Answer

Q: Andrew Lazar asked about QSR contract negotiations and tariffs.

A: Mike Smith and Bernadette Madarieta responded on crop prices, input costs, and contract negotiations, noting that contract negotiations for QSRs start in summer, and tariffs may impact discussions.

Q: Thomas Palmer inquired about 4Q gross margin.

A: Bernadette Madarieta explained fixed cost absorption due to lower production in 4Q leading to higher cost per pound, with seasonality and inventory turn driving the margin headwind.

Q: Yasmine Deswandhy asked about acreage reductions and price impact.

A: Mike Smith discussed demand and inventory, stating lower acreage due to soft demand and high inventories, and price decline being offset by other input cost inflation.

Q: Robert Moskow asked about Connell plant and competitor capacity.

A: Mike Smith addressed plant sale plans (not in best interest currently) and competitor capacity, noting some delays but no details on competitors' plans.

Q: Max Gumport asked about QSR traffic weakness.

A: Mike Smith and Bernadette Madarieta discussed French fry attachment rates remaining high, but uncertainty in consumer drivers of QSR traffic.

Q: Alexia Howard asked about turnaround plan surprises.

A: Mike Smith talked about data-driven approach and unbiased evaluation of all options in the value creation and long-term strategy processes.

Q: Matthew Smith asked about North America volume and EBITDA margin.

A: Bernadette and Mike discussed customer focus, lapped ERP transition benefits, and future guidance on QSR volume wins.

Q: Marc Torrente asked about pricing rationality and International price/mix.

A: Mike Smith commented on price pressure in International markets due to soft demand and macroeconomic impacts.

Q: Carla Casella asked about CapEx maintenance and QSR contract changes.

A: Bernadette responded on CapEx components (maintenance, modernization, environmental), and Mike discussed adjusting contract schedules to align with customer needs.