Chocolate pricing

Lamb Weston (LW) stocks more than 15% in 3 months: here’s why – 14 October 2022

Lamb Weston Holdings, Inc. (L.W. Free Report) appears well positioned, thanks to strategic growth efforts such as increasing capacity. Value-added frozen potato product supplier benefits from effective pricing efforts. These benefits were seen in its first-quarter fiscal 2023 results, with revenue and net income growing year over year.

Zacks Rank #1 (Strong Buy) stock has gained 15.2% over the past three months against an industry decline of 3.8%. The stock comfortably outperformed the 7.5% drop in the Zacks Consumer Staples sector during the period.

Let’s go deeper.

Good performance in the first quarter, see

Lamb Weston’s results for the first quarter of fiscal 2023 benefited from pricing actions across all business segments and manufacturing cost savings undertaken to mitigate inflation. LW’s net income was 75 cents per share, up 317%. The benefit can be contributed to higher operating income. Net sales were $1,125.6 million, up 14% with growth in all reporting segments. Global segment sales increased 12% to $559.7 million. Foodservice sales increased 14% to $366.3 million. In the retail segment, sales increased 28% to $169.6 million.

When releasing its fiscal first quarter results, the company reiterated its outlook for fiscal year 2023 as it continues to build operational momentum. On its latest earnings call, management emphasized that while the macro environment remains volatile, it is on track to deliver results in the upper end of the 4.7 to 4.8 sales target. billions of dollars, with prices being the engine of growth. Management is on track to top its adjusted diluted earnings per share (EPS) in the $2.45 to $2.85 range. The increase can be mainly attributed to sales growth and gross margin expansion.

Image source: Zacks Investment Research

Pricing actions fuel growth

Lamb Weston’s product line benefited from robust price/mix, as evidenced in the first quarter of fiscal 2023. Price/mix increased 19%, reflecting gains in pricing actions across key segments of business activity to counteract inflationary input, manufacturing and transportation costs.

On its most recent earnings call, management emphasized that it expects to continue realizing the deferral benefits of product pricing actions in the restaurant and retail segments in fiscal 2023. In the global segment, it expects to see benefits from pricing actions, including pricing structures for contract renewals.

Efforts to increase capacity

Lamb Weston’s strong balance sheet and ability to generate cash positions it well to expand production capacity and fuel its long-term growth. For 13 weeks ending August 28, 2022, the company’s capital expenditures (including IT expenditures) were $121.2 million as it continues to build new fry lines in Idaho and in China. For fiscal 2023, the company expects cash used for capital expenditures to be between $475 million and $525 million.

Lamb Weston’s efforts to increase offerings and increase capacity allow the company to meet growing demand conditions for snacks and fries. In September 2022, Lamb Weston unveiled plans to expand fries processing capacity in Argentina with the construction of a new manufacturing unit in Mar del Plata, Buenos Aires. In July 2021, the company announced the plan to expand french fries processing capacity at its existing American Falls, ID plant – with an envisioned capacity to manufacture over 350 million pounds of frozen french fries and other potato products per year. In March 2021, the company unveiled plans to build a new French fries processing plant in Ulanqab, Inner Mongolia, China.

We believe that these well-thought-out expansion efforts and the aforementioned benefits will likely help LW stay in the investors’ good book.

Other actions to consider

Some top-ranked stocks are Lancaster Colony (LANC free report), Hershey (HSY free report) and The JM Smucker (SJM free report).

Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks rating of 1 (Strong Buy). LANC achieved a 170% profit surprise in the latest reported quarter. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for Lancaster Colony’s current-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, over corresponding figures released a year ago.

Hershey, North America’s largest chocolate maker as well as a world leader in chocolate and non-chocolate confectionery, currently has a Zacks rank of #2 (buy). HSY realized an earnings surprise for the last four quarters of 8.7% on average.

Zacks’ consensus estimate for Hershey’s sales and EPS for the current fiscal year suggests growth of 13.9% and 14.4%, respectively, from numbers reported a year ago.

JM Smucker, which manufactures and markets branded food and beverage products, carries a Zacks rank of No. 2. JM Smucker delivered a surprise on earnings for the past four quarters of 20.8% on average.

Zacks’ consensus estimate for SJM’s current-year sales suggests growth of 4.4% from the figure reported a year ago.