2023-10-05 10:59:52 ET
Summary
- Lamb Weston Holdings, Inc. has experienced strong growth, and a recent pullback below $100 presents an attractive entry point for traders and long-term investors.
- The company reported impressive financial performance, with revenues beating estimates and strong pricing power.
- Despite a slip in organic sales volumes, Lamb Weston's strong pricing actions and cost management contributed to significant growth in income from operations and net income.
- Raised guidance and a clean balance sheet sets this up for a trade for short-term investors and an investment for long-term investors.
Lamb Weston Holdings, Inc. ( LW ) is a former component of Conagra ( CAG ), specifically its old commercial assets. It was spun off about 6 years ago. Lamb Weston is enjoying tremendous growth, and the recent pullback below $100 creates an attractive entry point for traders and long-term investors for capital gains. While there is a dividend here , the yield is a paltry 1.3% , so income investors have nothing to write home about. But growth investors should give this name some serious consideration. It is our quick pick of the day, and the just reported earnings , which we will discuss, as well as the forward view support a buy call on this food name.
Strong headline performance for Lamb Weston
We first want to highlight the fact that the company surpassed estimates on the top and bottom lines, and the latter was extremely impressive. We believe LW shares rally on this, and get some follow-through for the rest of the year after shares have fallen about 20% from 2023 highs. Revenues rolled in at $1.67 billion million, beating estimates by $60 million and rising a strong 47.8% year over year. Of course, this is the result of incremental acquisitions, not just organic growth. However, organic sales volumes were in line with expectations, and shipment trends to customers improved as the quarter progressed. The acquisition in question was the European joint venture of Lamb Weston/Meijer, which added $375 million in sales. Organically, volumes actually slipped 8%, which is something the bears may hone in on. However, price/mix was up 23%, driving gains in an inflationary environment.
Costs were kept in line as well, which helped income from operations and net income grow. Gross profit increased $226.2 million versus the prior year quarter to $499.5 million. Once again, this was a result of strong benefits from pricing actions, which more than offset higher costs on a per pound basis of shipments and the lower sales volumes aforementioned. Income from operations doubled year over year to $329.9 million. This also included a $2.8 million hit from the spinoff. Factoring in expenses, the company saw net income of $234.8 million. On a GAAP basis, earnings per share were 1.60, and with adjustments came in at $1.63 as well, which surpassed consensus by $0.55.
Segment specific performance was equally impressive. But there are now some reporting changes you should be aware of. Given the company’s Acquisitions and in an effort to align with Lamb Weston's expanded global footprint, management, has reorganized operations as two business segments versus the prior four reportable segments. Now segments are simply " North America" and "International", which started for this first quarter. Net sales for the " North America" segment, and this is sales in the U .S. , Canada and Mexico , increased $179.8 million to $1.14 billion, up 19% versus the prior year quarter. Price/mix increased 24%, while volume declined 5%. Adjusted EBITDA increased $147.6 million to $379.4 million
Net sales for the "International" segment, and that is all sales outside of North America , increased $359.9 million to $529.9 million, but that did include $374.9 million of incremental sales attributable to its acquisition aforementioned. Adjusted EBITDA increased $56.5 million to $89.6 million, up 171%
As we look ahead, we are bullish in the short and long-term. We like the mantra of people need to eat. The pricing actions taken will sustain gains, and volume will normalize over time. Lamb Weston has a clean balance sheet with $163.3 million of cash and cash equivalents, with no borrowings outstanding under its $1.0 billion U.S. revolving credit facility. The company has repurchased nearly a million shares in Q1 and does pay a dividend, but consider that a small bonus. You want to be in this one for growth.
Lamb Weston Holdings, Inc. also raised its guidance. For the year, expect sales for $6.8-$7.0 billion, and net income of $805 to $875 million, and EPS of $5.50 to $5.95. At the pre-market share level of $96 at the time of this writing, this is 16X FWD EPS, attractive in our opinion for the growth. Do some buying under $100. We see shares hitting $120 in 12 months, allowing for slight margin expansion, but factors in anticipated and ongoing annual growth.
For further details see:
Lamb Weston: Shares Have Retraced For Attractive Entry