Lamb Weston Holdings is on turnaround watch for the week of October 9, 2023, after the stock did a volatile gap up headfake with gap fill. Volatility usually increases in a stock or market at a market bottom.
On October 5, 2023, Lamb Weston reported Q1 adjusted EPS of $1.63 versus the consensus estimate of $1.08. The company reported Q1 revenue of $1.67 billion versus the consensus estimate of $1.62 billion.
Volumes were down 8% year over year for the quarter for the multinational potato producer, whose largest client is McDonald’s (MCD), which accounts for 13% of FY23 sales. The company’s decision to exit lower-margin, lower-priced businesses was the main cause of this minor weakness, though ongoing inventory destocking had some lingering effects. In particular, LW believes that as the year goes on, volumes will increase.
LW reported adjusted EPS of $1.63, a 117 percent increase from the previous year. Revenue soared by 48 percent to $1.67 billion, marking LW’s second consecutive quarter of over 40 percent growth. It should be noted, though, that the majority of LW’s robust sales growth stemmed from recent acquisitions, primarily from its EMEA business. Sales increased by 15% year over year when acquisition effects were removed.
LW noted that quick-service restaurant traffic growth offset further declines in full-service restaurant channels, reflecting the effects of inflation pushing customers toward QSRs with lower prices. QSR chains like MCD, Wendy’s (WEN), and Restaurant Brands International (QSR) should benefit from this dynamic.
“We delivered solid sales and earnings growth in the quarter, driven by the carryover benefit of pricing actions initiated last year as well as improved customer and product mix,” said Tom Werner, President and CEO. “Organic sales volumes were in line with expectations, and shipment trends improved as the quarter progressed.”
Upcoming Potato Crop Harvest
Lamb Weston was optimistic about the upcoming harvest of the potato crop, anticipating crops in North America to be comparable to pre-pandemic historical averages. Similarly, Lamb Weston predicts crops in Europe to be consistent with historical averages due to the region’s improved growing conditions.
Due to strong Q1 results and impending crop harvests, Lamb Weston increased its outlook for FY24, predicting adjusted EPS of $5.50-5.95, up from $4.95-5.40, and revenue of $6.8-7 billion, an improvement of $0.1 billion.
The company said, “We raised our earnings target for the year to reflect our performance in the quarter, as well as the current solid demand and pricing environment. We continue to expect the potato crop in our growing regions in North America will be in line with historical averages, and we believe the overall crop in Europe has improved compared to earlier predictions as a result of better growing conditions. The integration of our EMEA operations and our capacity expansions also remain on track, including the start-up of our facility in China this month. With these investments, along with our strategic efforts to improve the capabilities and flexibility of our global production network and operations, we believe that we are well-positioned to continue to serve our customers and drive sustainable, profitable growth over the long term.”
Lamb Weston price target raised at Jefferies
On October 6, 2023, Jefferies maintained a Buy rating on the stock while increasing the price target for Lamb Weston from $125 to $130. The analyst believes the valuation is overly discounted given what the company refers to as a historically high and improved margin structure and estimates that strong Q1 results and increased guidance will result in mid-year EBITDA growth of 25 percent or more.
As mentioned above, volatility often increases at market tops and bottoms. The extreme volatility in this Consumer Defensive stock could be indicating a market bottom.
Lamb Weston Holdings, Inc. is a leading global producer, marketer, and distributor of frozen potato products. The company specializes in producing and supplying high-quality frozen potato products, including french fries, hash browns, mashed potatoes, and other potato-based appetizers and side dishes. Lamb Weston serves various customers in the foodservice, retail, and industrial channels, providing them with a wide range of potato products tailored to their needs. The company operates in markets throughout North America, Europe, and various other regions globally.
How a potato becomes a Lamb Weston fry
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