Lamb Weston Holdings Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Lazar - Barclays Bank PLC - Analyst : Great, good morning, everybody. Tom, I guess my first question is Lamb pricing. I think you originally said you expected price mix to be down low to mid-single digit in the first quarter. And it was positive and I guess specifically really in North America, it was also positive. As you mentioned, and I get the, the impact from carryover pricing in North America from last year, but presumably you knew that was coming. So I'm trying to get a sense of what, what was better on pricing in North America. And is it that some of the trade investments and such that you needed to make to retain customers? And some of these large customer negotiations were maybe more favorable than you might have expected? And obviously, the reason I ask is because of course, the supply demand imbalance has investors more worried about the fate of, of pricing and what's been obviously a historically, a very rational, you know, sort of environment. So that's my first question.

Question: Andrew Lazar - Barclays Bank PLC - Analyst : Ok, thank you for that. And then you generally have good visibility, you know, to your competitive set and, and sort of industry utilization levels. And I guess I'm curious if you've heard of or, or seen other North America players thinking about or taking similar sort of capacity reduction moves or if utilization of competitors is, you know, already much higher than, than what you're seeing at Lamb Weston and because of some of your, you know, specific sort of challenges really trying to get a sense of how, how quickly some of these potential reductions in the industry can start to actually affect, you know, in a positive way, the supply demand imbalance, knowing that restaurant traffic trends will likely continue to be weak for some time. Thank you.

Question: Andrew Lazar - Barclays Bank PLC - Analyst : Thanks so much.

Question: Ken Goldman - JP Morgan Chase & Co - Analyst : Hi, thank you. I wanted to ask a little bit about the, the, the commentary about the $500 million that might be spent for environmental improvements in your plans. Can you walk us through a little bit more? Where that's coming from, what the time line is on that and maybe how you might be able to mitigate that a little bit and where that might really show up in your financial statement as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Ken Goldman - JP Morgan Chase & Co - Analyst : Ok, thank you for that. And then, you know, I certainly understand the decision to sort of temporarily delay the, the rest of the ERP implementation, giving all the moving pieces in your business right now. Can you just walk us through a little bit, sort of what you, I don't want to use the word sacrificing but some of the choices that you've made, in delaying those plans, you know, any impact to some of your, you know, medium term financial targets. As a real as a result, just given that the ERP implementation, you know, longer term is done, you know, with some positive benefits in mind as well.

Question: Ken Goldman - JP Morgan Chase & Co - Analyst : Great, thanks so much.

Question: Adam Samuelson - Goldman Sachs Group, Inc - Analyst : Yes, thank you. Good morning everyone. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Adam Samuelson - Goldman Sachs Group, Inc - Analyst : Good morning. I wanted to dig in a little bit just on the updated gross margin expectation the year. Clearly part of it is related to the product recall in the first quarter and that being a larger item than you thought a couple months ago. But, but you also need to lower a higher manufacturing costs on a per pound basis, given the production curtailments. I was hoping you can maybe just put a little bit more context on the magnitude of those as we think about margins. Any differences between the North America and international operations to consider and how should we given the restructuring and timing of the closures? How do is there any impact to the phasing of margins and earnings over the balance of the year that would differ from historic seasonality?

Question: Adam Samuelson - Goldman Sachs Group, Inc - Analyst : Ok, and then just as I, I think about some of the key items in terms of the cost saving plans and the updated CapEx, I mean, just think about some of the early items that you're laying out as we think about 2026. Just to be clear, you lived an $85 million cost saving target for in '26. Is that incremental to the to the $50 million this year, that's total. So it's a year on year $35 million benefit just on the total CapEx that you need to Bernadette. You said base CapEx equal to DNA which presuming you're saying $375 million the right go forward rate or it steps up more because the Netherlands and in Argentina start depreciating plus the environmental CapEx, which for next year you said was $150 million is just make sure we're all talking about the same numbers.

Question: Ken Goldman - JP Morgan Chase & Co - Analyst : Ok, that's very helpful.

Question: Ken Goldman - JP Morgan Chase & Co - Analyst : Ok. That's helpful. I will pass it on. Thank you.

Question: Peter Galbo - BofA Securities - Analyst : Hey guys. Good, good morning. Thank you for all the detail and for taking the questions. I want to actually go back to Adam's question just on, you know, the gross margin impact of, of idling lines and kind of test the other side of the argument. So, in theory, right, if those lines don't get pulled back up next year, let's just say it does that, I mean, structurally leave the margins lower. I mean, if the demand environment doesn't improve and, and those lines stay down, do we stay in a margin environment that looks more like, you know, the second through fourth quarter of this year, simply because that, that fixed cost leverage doesn't go away or do you have, you know, potential in there to further mitigate, you know, fixed cost leverage outside of the incremental $30 million of cost savings for next year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Peter Galbo - BofA Securities - Analyst : Ok. Thanks for that, Tom and, and then Bernadette maybe just to just a clarification on the SG&A, you know reduction. I think it's like $60 million at the midpoint. I think you said two-thirds of the $55 million from cost saving goes to SG&A. So that doesn't make up the whole bucket. Just what, what's the rest of the reduction? Is it? Is it compensation expense? Like how, how should we think about that?

Question: Peter Galbo - BofA Securities - Analyst : In SG&A, guidance?

Question: Peter Galbo - BofA Securities - Analyst : Got it. Thanks

Question: Tom Palmer - Citigroup Inc - Analyst : Good morning. And thanks for the question. I just wanted to follow up on the composition of the sales growth a quarter ago. I think the expectation was for flattish price mix for the year and then growth coming from volume. Is this still the expectation or are there any shifts between these two items?

Question: Tom Palmer - Citigroup Inc - Analyst : Ok, thank you. And I guess just on that, I wanted to kind of understand the discussion on fixed cost leverage. So it sounds like the volume outlook for the year is a little change. And so kind of the what's being cited is this added margin pressure is, is closing the lines. I would, I would think that closing lines ultimately has benefits for profitability. So I guess why we added overhang and again, it sounds like the, you know, fixed cost to leverage is not that big of an incremental factor if the volume outlook is unchanged.

Question: Tom Palmer - Citigroup Inc - Analyst : Ok, thank you. I, I guess I just struggle with why this wasn't factored in a quarter ago if the volume outlook is, is so little change, but we could talk about it later. Thank you.

Question: Robert Moskow - TD Cowen - Analyst : Thanks for the question. Two things, is it fair to say that pricing goes negative for the rest of the year in North America? Because I think you still have to give incentives to food service customers to get them to come back after the ERP disruption. So can you give us an update on how that's going, is, have you started that yet or is there a lot more acceleration to do in a follow up after? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Robert Moskow - TD Cowen - Analyst : OK. So it's going to step up.

Question: Robert Moskow - TD Cowen - Analyst : That's fine. And my, my follow up is, you know, I know you don't like these hypotheticals but like a year from now, let's say demand is, you know, unchanged or just not getting any worse. And you've made all these capacity reductions and they're still in place. Is that sufficient to get the industry supply demand back in balance? Is that, is that alone enough? And, and then where do you think utilization would be in that scenario compared to where it is now?

Question: Robert Moskow - TD Cowen - Analyst : Ok. All right. Well, thank you.

Question: Rob Dickerson - Jefferies LLC - Analyst : Great, thanks so much. So I guess just kind of first question is just on some of the share loss, right? Clearly, coming out of the ERP disruption in Q3, seems like maybe you got a little bit better in Q4, maybe got a little bit better in Q1, but at the same time, you know, sounds like a fair amount of the, the volume pressure in North America, at least in Q1 was still from the share loss. And then secondly, you know, as we think through kind of, you know, the rest of the year, especially the back half as you lap that, you know, there is kind of this implied nice lift, right? That should come as you get that share back. So I'm just curious, you know, if you could provide like any color as to maybe how the share regain, you know, progression might be coming.

Question: Rob Dickerson - Jefferies LLC - Analyst : Yeah. Ok, fair enough. And then just another kind of quick simple one for me is just, you know, the plant closure I'm not sure if you can quantify maybe just kind of, you know, as a percent of your total global and North America capacity. Kind of what that estimate is. That's it. Thanks.

Question: Rob Dickerson - Jefferies LLC - Analyst : Super, perfect. Thank you so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Marc Torrente - Wells Fargo Securities, LLC - Analyst : Hey, good morning. Thank you for the questions. Just building on the last one on the Connell facility, any context around relative manufacturing costs versus other newer facilities. And I appreciate you sizing the capacity there. And then also any other color on sizing and timeline for the plan curtailments?

Question: Marc Torrente - Wells Fargo Securities, LLC - Analyst : Ok, thank you. And then you also called out some strong volume trends internationally outside of Europe, maybe some additional color there, key regions and how much is new international production enabling this?

Question: Marc Torrente - Wells Fargo Securities, LLC - Analyst : Great. Thank you.

Question: Matthew Smith - Stifel, Nicolaus & Company, Inc - Analyst : Hi, good morning. I wanted to come back to the discussion around pricing and what you're seeing in the business. It sounds like the amount so far, the investment and pricing has been relatively in line with your expectations. But in part of the explanation for taking a bit out of the low end, you referenced higher price investments and higher investments in price and trade than originally anticipated. So can you help me balance those two dynamics against each other? Are you seeing perhaps a bit more price investment in the food service business and that's still to come? And that's the difference.

Question: Matthew Smith - Stifel, Nicolaus & Company, Inc - Analyst : Thank you for that. I'll leave it there.

Question: Carla Casella - JP Morgan Securities LLC - Analyst : Hi. I'm wondering on the $200 million to $250 million of charges. Can you bucket that a little bit in terms of the different items that you talked about? And then also is the 20% non-cash. Is that mostly the potato inventory write down or is another piece of it? That's non-cash versus cash?

Question: Carla Casella - JP Morgan Securities LLC - Analyst : Ok, great. And then given the lower volumes this year and that potato contracts that you're paying for, you haven't used, will that change any of your negotiations with your suppliers for next year or your contract pricing for next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 02, 2024 / 2:00PM, LW.N - Q1 2025 Lamb Weston Holdings Inc Earnings Call

Question: Carla Casella - JP Morgan Securities LLC - Analyst : Ok. And, but I guess my thought is if the volumes are lower, would you see a material step up in the pricing? Are you getting a lot of volume based discounts that you may lose?

Question: Carla Casella - JP Morgan Securities LLC - Analyst : Ok. And then just one question, leverage target, any change to your current leverage target?

Question: Carla Casella - JP Morgan Securities LLC - Analyst : So that is 3.5 times.

Question: Carla Casella - JP Morgan Securities LLC - Analyst : Ok. That's great. Thank you so much.