To address the demand for french fries worldwide, Lamb Weston is investing considerably.
Expanding is Lamb Weston Holdings, Inc. The company has launched three large capital projects in global markets over the last five months, aiming to expand its operations and take advantage of the growing demand for value-added potato products among consumers worldwide.
The European joint venture Lamb Weston/Meijer said on July 27, the day the firm reported its fiscal 2021 financial results, that it will increase output at a plant in Kruiningen, The Netherlands. The $237 million investment will increase capacity by about 390 million pounds.
Lamb Weston said five days ago that it would double the amount of french fries it can prepare at its American Falls, Idaho, manufacturing facility. The $415 million investment will increase the plant’s annual production capacity of frozen french fries and other potato products by more than 350 million pounds. Additionally, the business announced plans in March to invest $225 million in a plant in Ulanqab, Inner Mongolia, China, that would make french fries.
Thomas P. Werner, President and Chief Executive Officer, stated, “We’re making some significant investments to support long-term growth and profitability,” during a conference call on July 27 to go over the fiscal 2021 results.
Following what Mr. Werner described as “the most challenging operating environment in our company’s history,” the investments have been made.
“We focus on the right near-term priorities while making sure we continue the pursuit of our long-term strategic objectives,” Mr. Werner added, “even though our results in fiscal 2021 were somewhat choppy due to the pandemic.” “The pandemic demonstrated the tenacity of the category and our business model, as the performance at QSR (quick-service restaurants) and at retail substantially offset demand in most of our Foodservice segment channels.”
The year-end net income of $318 million, or $2.17 per share of common stock, decreased 13% to $318 million.
Sales for the year fell 3% to $3.67 billion.
The three business units that make up Lamb Weston’s operational organization are Global, Foodservice, and Retail. Worldwide foodservice and institutional operators are the main clients of the Global and Foodservice divisions. Global unit sales decreased by 3% to $1.9 billion, while foodservice sales decreased by 5% to $1 billion for the year. Retail revenue reached $603 million, up 1%.
“We’re encouraged by the pace of recovery in restaurant traffic in the US,” Mr. Werner said. “While overall restaurant traffic remains below pre-pandemic levels, it’s recovered much of the lost ground and continues trending in the right direction.”
He noted that overall US QSR traffic in May was down low single digits versus pre-pandemic levels, which was a modest improvement. He added that larger national QSR chains were outperforming small and regional chains, but that chicken-based chains were outperforming more burger-oriented chains.
“What’s helped to offset the effect of lower restaurant traffic during the year has been an increase in fry attachment rate,” Mr. Werner said. “Simply put, this is a rate at which consumers order fries when visiting a restaurant. The increase in fry attachment rate has been largely consistent through most of fiscal 2021, and we believe that rate may have some staying power. We believe that if fry orders continue at the higher rate as restaurant traffic normalizes, it would lead to a meaningful amount of additional volume demand in the US annually.
“The increase in fry attachment rate in part helps to explain how our shipments in most of our key restaurant and foodservice channels have already reached core or close to pre-pandemic levels on a run-rate basis despite restaurant traffic not yet fully recovered it.”
Mr. Werner described the foodservice situation as “more complicated” outside of the US. The recovery has happened unevenly, even while demand has recovered in Europe and other international markets.
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“In general, we anticipate that the rate of recovery outside of the US will persist in differing, with Europe and the developed markets in Asia continuing to produce a steady improvement in demand,” the speaker stated. “We anticipate more volatility and a slightly longer recovery period in emerging markets in Asia, Latin America, and the Middle East.”
The company’s long-term goal of low- to mid-single digit revenue growth is expected to be exceeded in fiscal 2022, according to management guidance.
Controller Bernadette M. Madarieta stated, “We expect growth to be primarily driven by higher volume for the first half, although we also anticipate that overall price/mix will be positive.” As compared to our somewhat soft shipments during the first half of fiscal 2021 owing to the pandemic, the predicted volume rise reflects the ongoing recovery in demand in the US and our major overseas markets.
We anticipate that our sales growth in the second half of the year will be more evenly distributed between increased volume and better price/mix. The benefit of the shipment comparisons will be less noticeable, particularly toward the end of the year, even though the volume drivers should be comparable to those in the first half.