EAGLE, IDAHO — Lamb Weston Holdings, Inc., is benefiting from strategies to counter cost input inflation. Pricing actions and efforts to improve customer and product mix helped the company deliver record sales and strong earnings in the second quarter, prompting management to increase its full-year financial targets.
Net income for the second quarter ended Nov. 27 was $103 million, equal to 72¢ per share on the common stock, up 217% from $32.5 million, or 23¢ per share, in the same period a year ago. Sales rose to $1.3 billion from $1 billion.
The company now expects full-year sales to be in the range of $4.8 billion to $4.9 billion, up from the previous target of $4.7 billion to $4.8 billion. It is targeting adjusted net income of $540 million to $580 million, up from the previous target of $360 million to $420 million. Adjusted diluted earnings per share are expected to be in the range of $3.75 to $4, up from the previous target of $2.45 to $2.85.
Increases in traffic and fry-attachment at quick-service restaurants (QSRs) drove a 34% increase in net sales for the company’s global segment, which includes the top 100 North American-based restaurant chain customers and all international sales. Net sales for the segment were $693 million, with pricing actions driving a 31% increase in price/mix. Growth in international shipments and strength in limited-time product offerings at domestic QSRs drove a 3% increase in volume.
A year-over-year decline in full-service restaurant traffic had a more pronounced impact on the company’s foodservice segment, which services North American foodservice distributors and customers generally outside of the top 100 North American-based restaurant chains. Net sales for the segment increased 14% to $358 million. Price/mix was up 25% while volume was down 11%.
Supply chain disruptions on run rates and throughput in the company’s facilities contributed to the decline in volume, said Thomas P. Werner, president and chief executive officer of Lamb Weston.
“These disruptions have largely been related to the impact of shortages in certain commodities, such as starches and edible oils, as well as factory worker shortages and availability,” he said during a Jan. 5 conference call with financial analysts.
The impact of supply chain disruptions also drove a 9% decline in volume for the company’s retail segment. Sales of branded and private label products to retail customers increased 34% to $192 million, with pricing actions driving a 43% increase in price/mix.
The availability of key commodities and production team members has improved in recent quarters. Still, the challenges are likely to affect volumes for the remainder of the fiscal year, Mr. Werner said.
The company also experienced production constraints after adjusting operating procedures to reflect changes in product and consumer demand, including higher demand for retail fries, premium fries and batter-coated products.
“To produce batter-coated fries, we typically run our lines at slower speeds,” Mr. Werner said. “This results in reduced throughput. We also require more frequent and longer downtimes to clean and sanitize lines between production runs when batter is used, which affects our run-rates and line availability. Together, this results in fewer finished pounds produced relative to making uncoated fries, which ultimately leads to pressure on customer order fill rates.”
Ongoing commodity shortages, the onboarding of recently hired production team members and adjustments to operating procedures will continue to pressure volume performance and the company’s ability to meet customer demand until capacity investments in China, Idaho and Argentina become available over the next several years, he added.While the quality of potatoes from last year’s harvest is consistent with historical averages, yields are below Lamb Weston’s preliminary assessment. To fill its production needs, the company has secured additional potatoes in the Columbia Basin and Idaho and is sourcing potatoes from other regions in North America, including the East Coast. For next year’s crop, the company has agreed to a nearly 20% increase in contract prices for potatoes grown in the Columbia Basin.