Pricing decisions benefit Lamb Weston.
The president and CEO of Lamb Weston Holdings, Inc., Thomas P. Werner, stated that the company’s executives still saw a “healthy” demand for french fries. In the most recent quarter, the company experienced improvements in overall restaurant traffic over the same period last year, in addition to favorable price measures.
During an April 6 earnings call with financial analysts, Mr. Werner stated that nearly all of the gain was attributable to quick-service restaurants, especially burger and chicken outlets.
He remarked, “In contrast, business at full-service and casual-dining restaurants decreased from the previous year.” This has a more noticeable impact on our foodservice segment and partly caused the volume of that segment to fall. When customers visit restaurants or other foodservice establishments, the rate at which they order fries, known as the “fry attachment rate,” stays steady.
In the upcoming months, management anticipates that demand and traffic patterns in restaurants will remain unstable as customers adjust to a difficult economic climate. According to Mr. Werner, the demand for fries on food-at-home channels “remains solid.”
The third quarter’s net income finished on February 26th, with $175.1 million, or $1.22 per share on the common stock, representing an increase over the previous year’s $106.6 million, or 73¢ per share. Lower equity method investment profits, which included a $47.3 million unrealized loss related to mark-to-market adjustments and a $19.3 million unrealized gain in the year-ago quarter, partially offset the rise in income, which also included a net gain of $4.3 million for acquisition-related factors. After excluding non-comparable items, adjusted net income increased to $207.4 million from $92.3 million.
The quarter’s net sales came to $1.3 billion, a 31% increase over the previous year’s $955 million. In order to offset rising input and manufacturing costs, the company’s major business sectors all benefited from price measures, which is why there was a rise. The overall volume was unchanged, with the impact of leaving lower-priced, lower-margin business and, to a lesser degree, slower demand at full-service and casual dining establishments being offset by growth in shipments to major chain restaurants and retail customers in North America.
With net sales of $648.5 million for the quarter, the company’s Global segment—which includes the top quick-service and full-service restaurant chains in North America as well as overseas business—saw a 33% increase in revenue from the previous year. Since volume remained unchanged from the previous year, pricing changes were the main driver of growth.
Thanks to price adjustments, the Foodservice segment’s net sales—which include smaller North American restaurant chains and foodservice distributors—rose 22% to $360 million.
Net sales in the Retail division, which serves supermarket, mass merchant, and club customers in North America with branded and private label items, climbed by 50% to $216 million. Volume increased by 6%, with robust growth in branded goods and moderate growth in private label goods.
For more than $680 million, Lamb Weston has successfully acquired the remaining stake in its European joint venture with Meijer Frozen Foods BV. The company’s global manufacturing footprint gains six factors and over 2 billion pounds of production capacity with the inclusion of the Lamb Weston Europe, Middle East, and Africa business.
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Management has updated the company’s full-year outlook to include the financial consolidation of Lamb Weston EMEA beginning in the fourth quarter. Net sales are expected to be between $5.25 billion to $5.35 billion, up from a previous forecasted range of $4.8 billion to $4.9 billion.
“About $300 million to $325 million of the increase reflects the consolidation of Lamb Weston EMEA,” said Bernadette M. Madarieta, chief financial officer. “The additional $100 million to $150 million increase reflects our strong results in our fiscal third quarter, and our expected continued momentum in the fourth quarter.”
The revised target of $580 million to $620 million for net income for the fiscal year is now estimated to be between $639 million and $664 million.
Net income for the year’s first nine months was $510.1 million, or $3.54 per share on common stock, as opposed to $168.9 million, or $1.16 per share, the previous year. The period’s net sales increased from $2.9 billion to $3.7 billion.