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Lamb Weston (LW) Up More Than 30% in 3 Months: Here's Why

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Lamb Weston Holdings, Inc. LW looks well-positioned, courtesy of its strategic growth efforts like boosting offerings and expanding capacity. The provider of value-added frozen potato products is benefiting from robust price/mix. Robust foodservice recovery is also driving growth.

Thanks to such upsides, Lamb Weston’s stock has gained 33.3% in the past three months compared with the industry’s growth of 1.5%.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research


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Efforts to Boost Capacity

Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well placed to boost production capacity and fuel long-term growth. In July 2021, the company announced the expansion plan of french fry processing capacity at its existing American Falls, ID facility – with an envisioned capacity to manufacture more than 350 million pounds of frozen french fries and other potato products annually. In March 2021, the company unveiled plans to build a new french fry processing facility in Ulanqab, Inner Mongolia, China. In the last earnings call, the company highlighted that it is on track with capacity expansion investments across Idaho and China, which will keep it well-positioned to support rising customer demand in the long term. In an earlier development, Lamb Weston completed the expansion of a facility located at Hermiston, OR, on Jun 18, 2019. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries.

What Else is Working Well?

Lamb Weston has been benefiting from a recovery in the Foodservice business. The trend persisted in the third quarter of fiscal 2022, with Foodservice sales soaring 34% to $294.5 million. Volumes and Price/mix increased 22% and 12%, respectively. Price/mix benefited from the favorable mix and product and freight pricing actions to counter inflation. Volumes benefited from the continued rebound in demand at full-service restaurants and non-commercial channels, like lodging and hospitality, healthcare, schools and universities, sports and entertainment and workplace environments.

During third-quarter fiscal 2022, Lamb Weston’s price/mix increased 12%, mainly reflecting gains from pricing actions in the company’s business segments to counter input, manufacturing and transportation cost inflation. Price/mix increased 8% in the Global segment, reflecting a favorable mix and domestic and international product and freight pricing actions to counter inflation. In the Retail segment, Price/mix advanced 12%, driven by product and freight pricing actions across the branded and private label portfolios and a favorable mix. For fiscal 2022, management expects net sales growth to exceed its long-term goal of low-to-mid single digits. The company expects fourth-quarter fiscal 2022 net sales growth to be fueled by price/mix, indicating its pricing actions to counter input and transportation cost inflation.

Will Hurdles be Countered?

Although Lamb Weston’s third-quarter fiscal 2022 gross profit slightly increased year over year, the metric was hurt by escalated costs. Escalated manufacturing and distribution costs on a per pound basis and reduced sales volumes were a concern for the metric. In its last earnings call, management highlighted that net income and adjusted EBITDA (including unconsolidated joint ventures) would likely be under pressure in the fourth quarter of fiscal 2022. The company continues to navigate through major inflation for key production inputs, transportation and packaging. Also, industry-wide operational challenges like labor and commodity shortages might be a concern. It also expects raw potato costs on a per pound basis to increase.

Nevertheless, we believe that the aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company keep its growth story going.

3 Solid Staple Stocks

Some better-ranked stocks are Pilgrim’s Pride PPC, Medifast MED and Sysco Corporation SYY.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). PPC has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financial year earnings per share (EPS) suggests growth of almost 43% from the year-ago reported number.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.

Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Sysco’s current financial year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.


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