Lamb Weston is upbeat about the QSR comeback.
Some foodservice industry areas are experiencing a resurgence of stability, as stated by executives at Lamb Weston Holdings, Inc. Although there is still a great deal of uncertainty, management is optimistic about the patterns they are observing at quick-service restaurants (QSRs) as the business moves from the first to the second quarter of its fiscal year 2021.
Chief financial officer Robert M. McNutt stated, “Weekly shipments to our large QSR and full-service chain restaurant customers in the US are trending at around 95% of prior year levels,” during a conference call on October 7 to discuss first-quarter results. “We expect that shipments to full-service restaurants may slow down as outdoor dining options become more constrained with the arrival of colder weather, but QSRs are expected to be mostly unaffected.
Weekly shipments to our full-service restaurants, small and regional QSRs, and noncommercial clients collectively are trending at roughly 80% of levels from the previous year in our foodservice business. Although shipments to small and regional QSRs as well as full-service restaurants have been trending above that rate, the cold weather may cause them to soften. Supply to non-commercial clients has been steadily declining, and this pattern is probably going to hold until the COVID-19 pandemic is completely contained.
Some major QSR clients are showing interest in innovation and the potential introduction of limited-time offers (LTOs), which is encouraging. This is significant for the corporation because its largest business unit, the Global business unit, accounts for sales to the top 100 full service restaurant chains and QSRs located in North America as well as foreign sales.
According to president and CEO Thomas P. Werner, “there was a period where a lot of customers of all different sizes were focused on menu simplification based on the environment that unfolded in the last six months.” And I believe that some of our clients have a “share of occasion” mentality now that demand is starting to recover. This is resulting in a renewed conversation about LTO activity and what that would entail for certain of our clients.
Every client is unique. With regard to menu items, some of them are more assertive than others. And keep in mind that it does take some time to get them on the menu and in the marketplace once those conversations begin.
In comparison to the first quarter of fiscal 2020, when the company earned $116 million, or 79¢ per share, net income for the first quarter of fiscal 2020 was lower at $89 million, or 61¢ per share on the common stock.
According to Mr. McNutt, “We think that we survived the worst of the pandemic effect on our operations during the fourth quarter of fiscal 2020.” “Demand has rebounded from Q4 lows in the majority of restaurant categories, giving us the opportunity to report 3% sequential sales growth in our first quarter.
“Sales volume was down 14% as government-imposed restrictions on restaurant traffic and other foodservice operations continue to affect frozen potato demand outside the home.”
Sales of worldwide business units decreased 14% to $448 million. The foodservice division of Lamb Weston, which comprises restaurant chains outside the top 100 and North American foodservice wholesalers, had a 22% decrease in revenues to $237 million. Volume of units fell by 28%.
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In the latter part of fiscal ’20, pricing efforts resulted in a 6% increase in price and mix, according to Mr. Werner. Mix did not favorably pertain to two factors. First, the epidemic has disproportionately affected independent eateries, who bought a lot of Lamb Weston branded merchandise. Second, in an effort to cut expenses, some consumers have downgraded to more value-oriented products.
A bright spot for the company during the quarter was its Retail business unit, which had a sales increase of 19% to $154 million. Volume increased 11%.
“Volume growth of our Grown in Idaho, Alexia, and licensed brand products was up together more than 30% in the quarter,” Mr. Werner said. “That’s well above weekly category volume growth rates, which range between 15% and 25%.
“However, Retail segment’s volume growth was partially offset by applying in private label shipments, which reflects the loss of certain low-margin private label business that largely began during the third quarter of fiscal 2020.”
In terms of the future, Mr. Werner stated that general demand in all of the company’s markets is in line with what was noted in the second half of the first quarter. However, management is apprehensive about the future due to the arrival of colder weather, which will affect outside dining, and the further spread of the virus throughout the United States.