Lamb Weston Earnings: Strong Volumes Offset Pricing Pressure
- Hardik Shah
- Sep 30
- 4 min read
TLDR
Revenue Strength: Net sales flat at $1.66B, with 6% volume growth offset by weaker price/mix.
Margin Trends: Adjusted EBITDA steady at $302M; gross profit pressured by pricing but aided by cost savings.
Forward Outlook: Guidance reaffirmed; cost savings on track with $100M FY26 target and $250M by FY28.
Business Overview
Lamb Weston Holdings, Inc. (NYSE: LW) is a leading global supplier of frozen potato products, serving restaurants, quick-service chains (QSRs), retailers, and foodservice distributors worldwide. With brands like Alexia and significant private-label exposure, LW reaches both retail and away-from-home channels. Its global network spans North America, Europe, Asia, and Latin America, bolstered by recent capacity expansions in Argentina and the Netherlands.
Lamb Weston Earnings
Net Sales: $1.66B, flat YoY; constant currency sales down 1%. Volumes rose 6%, offset by a 7% decline in price/mix.
Gross Profit: $342M, down $14M YoY; adjusted gross profit $339M.
Operating Income: $157M (–26% YoY); adjusted $207M (+5%).
Net Income: $64M (–50% YoY); adjusted $103M (–9%).
EPS: $0.46 GAAP (–48% YoY); adjusted $0.74 (–5%).
Adjusted EBITDA: $302M, essentially flat YoY.
Cash Flow: $352M from operations; free cash flow $273M.
Liquidity: $1.4B (cash + revolver).
CEO Mike Smith noted: “The Lamb Weston team delivered first quarter results that exceeded our expectations and show commercial momentum in our business. While we are early in our Focus to Win execution, we are energized and excited by the emerging evidence of results.”
Forward Guidance
Revenue: Constant-currency sales of $6.35B–$6.55B (–2% to +2%).
Adjusted EBITDA: $1.0B–$1.2B.
Capex: ~$500M for FY26, weighted to maintenance and environmental projects.
Risks: Price/mix headwinds, competitive intensity (esp. Latin America), tariffs (~$25M annualized).
Opportunities: Innovation pipeline, customer wins, accelerating cost savings.
Operational Performance
North America: Sales –2% ($1.08B); volumes +5%, price/mix –7%. Adjusted EBITDA down 6% to $260M.
International: Sales +4% ($575M), flat on constant currency; volumes +6%, price/mix –6%. Adjusted EBITDA up 11% to $57M.
Cost Savings: Company ahead of plan, with FY26 $100M target on track and $250M annualized run-rate savings expected by FY28.
Capacity Moves: Restarting a curtailed U.S. line to meet demand; Argentina facility starting exports to Latin America.
CFO Bernadette Madarieta emphasized: “We grew volumes, improved our manufacturing cost per pound, and delivered strong cash flow. While we anticipated a decline in gross profit this quarter, the decline was less than expected due primarily to stronger sales volumes and incremental benefits from cost savings initiatives.”
Market Insights
Consumer Trends: Fries remain the most-ordered U.S. restaurant item, with “fry attachment rates” 2 points above pre-pandemic.
Traffic Trends: U.S. QSR traffic flat overall; chicken QSR up, burger QSR down. UK traffic –4%, mixed across continental Europe.
Competitive Landscape: Latin America seeing more aggressive pricing; private label gaining share in U.S. retail.
Consumer Behavior & Sentiment
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Consumer Behavior & Sentiment
Consumer demand for fries remains resilient despite mixed traffic trends. In the U.S., fries are still the most-ordered restaurant item, with attachment rates about two percentage points higher than before the pandemic. This underscores their role as an affordable indulgence across income cohorts.
Traffic patterns, however, remain uneven: QSR chicken concepts are growing, while burger QSRs saw low single-digit declines. Internationally, the U.K.—Lamb Weston’s largest overseas market—was down 4%, while continental Europe was mixed, and Asia (notably China) posted strong growth.
In retail, households are leaning more value-oriented, with private-label volumes gaining share over branded offerings. Operators are responding with menu innovation and value bundles, seeking to drive traffic and meet shifting consumer expectations.
Strategic Initiatives
Focus to Win: Lamb Weston’s new plan is built around four guiding pillars—market prioritization, customer partnerships, executional excellence, and innovation. Each ties directly to the consumer landscape:
Market prioritization: Investing behind faster-growing categories and geographies such as chicken QSRs and Asia, where consumer demand is strongest.
Customer partnerships: Working side-by-side with operators to co-develop value-driven bundles and tailored menu solutions in a challenging traffic environment.
Executional excellence: Maintaining fill rates and reliability, ensuring customers can depend on LW as traffic fluctuates.
Innovation: Addressing both ends of consumer demand—premium indulgence with Alexia’s Garlic & Parmesan and artisanal crunchy fries, and value-oriented private label offerings to support retail trade-down.
Innovation Pipeline: New Alexia SKUs (Garlic & Parmesan Crinkle Fries, Dill Pickle Fries), Paw Patrol kids’ line, artisanal crunchy fries internationally.
Sales Model Shift: Direct sales force supported by brokers to reach under-penetrated North American channels.
Smith added on customer partnerships: “We’re spending a lot of time making sure we’re doing the right joint business planning. Customers have a renewed focus on service quality and consistency rather than just price, and we’re delivering that.”
Capital Allocation
Dividends: $52M paid; quarterly dividend set at $0.37/share.
Buybacks: $10M repurchased; $348M authorization remaining.
Leverage: Net debt $3.9B; leverage ratio at 3.1x EBITDA.
The Bottom Line
Lamb Weston’s Q1 FY2026 underscores volume-driven growth and early benefits from its Focus to Win strategy, despite pricing and competitive pressures.
For investors, key themes are:
Execution on cost savings and efficiency programs.
Navigating competitive intensity in international markets.
Monitoring pricing and consumer trade-down dynamics in retail.
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