It has been about a month since the last earnings report for Lamb Weston (LW). Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lamb Weston due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lamb Weston Q4 Earnings Lag Estimates, Sales Down Y/Y
Lamb Weston reported dismal fourth-quarter fiscal 2020 results, with the bottom line deteriorating year over year and missing the Zacks Consensus Estimate. The top line fell year over year. Nevertheless, sales surpassed the consensus mark.
Quarter in Detail
In fiscal fourth quarter, the company posted adjusted loss of 1 cent per share, against earnings of 74 cents reported in the year-ago quarter. The downside can be attributed to lower sales and gross profit. Moreover, the bottom line lagged the Zacks Consensus Estimate, which was pegged at earnings of 12 cents per share.
Net sales came in at $846.9 million, down 16% year on year. Volumes declined 17% year over year due to significant fall in demand for frozen potato products in the Foodservice segment due to the coronavirus outbreak. Also, inventory destocking by consumers acted as a deterrent. Nevertheless, higher at-home consumption of frozen potato products amid the pandemic as well as positive contribution from buyouts offered some respite. Further, price/mix rose 1% on the back of higher prices in the Retail segment. Moreover, sales surpassed the consensus mark of $845.3 million.
Gross profit tumbled 56% to $111.1 million due to lower sales and increased manufacturing costs stemming from input cost inflation, inefficiencies as well as unfavorable mix. Also, escalated costs resulting from coronavirus outbreak were a reason.
SG&A expenses declined 21.8% to $80.2 million on the back of reduced incentive compensations, lower advertising and promotional costs. Also, reduced travel and meeting costs along with suspension of donations to charitable foundations were a reason.
Adjusted EBITDA (including unconsolidated joint ventures) declined 64% to $78.3 million due to lower operating income.
Sales in the Global segment dropped 18% to $429.3 million. Volumes and price/mix fell 16% and 2%, respectively. Volumes were also hurt by the impact of coronavirus on restaurant and other foodservice channels. Price mix bore the brunt of unfavorable mix of customers and reduced revenues from LTO products. Product contribution margin in the segment tumbled 70% to $33.5 million due to higher production costs, reduced sales volumes and pandemic related costs.
Foodservice sales declined 44% to $175.8 million. Price/mix and volumes declined 2% and 42%, respectively. Product contribution margin fell 61% million to reach $42.5 million, courtesy of elevated production costs, reduced sales volumes and pandemic related costs.
In the Retail segment, sales moved up 56% to $201.9 million. Price/mix and volumes increased 17% and 39%, respectively Product contribution margin improved 50% to $31.4 million on the back of increased sales volumes, favorable mix as well as reduced advertising and promotional costs.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $1,364 million, long-term debt and financing obligations (excluding current portion) of $2,992.6 million as well as total shareholders’ equity of $240 million.
Lamb Weston generated $574 million as net cash from operating activities during the fifty-three weeks ended May 31, 2020.
Considering uncertainties related to COVID-19, management is unable to foresee frozen potato products demand for fiscal 2021. Management is unsure about the impact of the pandemic on restaurant traffic in North America as well as international markets.
The company provided an update on the shipping trends for seven weeks ending Jul 20. In this regard, the company’s shipments in North America are nearly at 85% compared with prior-year levels, driven by demand from quick serve restaurants and retail. Also, demand from full-service restaurants increased sequentially in the region. Europe Shipments in the Europe region are at nearly 75% compared with year-ago levels as coronavirus-induced restrictions are being lifted. Moreover, shipments to China are nearly at 85% levels. However, the company is witnessing softness in International markets on rising coronavirus cases as well as destocking of inventory.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -28.41% due to these changes.
At this time, Lamb Weston has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lamb Weston has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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