Lamb Weston Holdings Inc Q2 2025 Earnings Call Summary

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

Question: Andrew Lazar - Barclays - Analyst : Great. Thanks very much. Tom, I guess, even assuming a 3% annual demand growth over time, and obviously that's a lot more than what we currently see. As you talked about capacity utilization by 2028, we'll only get back to around 90%. And that's certainly below where it's been historically in more the mid to high 90s. I guess in light of this, what do you now view as Lamb Weston's sort of structural or normalized EBITDA margin? And is it lower, or maybe roughly, how much lower is it than what you might have previously thought? And then I've got a follow-up.

Question: Andrew Lazar - Barclays - Analyst : Thanks for that. And Tom, in light of the industry dynamic and some of the incremental capacity and such, why do you think other players have not yet made sort of similar decisions to curtail production or perhaps closed or shut or older, less efficient facilities, given all the new capacity that's coming on stream as you have? Typically, from an industry that's been rational, that obviously seems to be sort of breaking down now quite materially. Thank you.

Question: Andrew Lazar - Barclays - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Peter Galbo - BofA Securities Inc. - Analyst : Hey, good morning. Thank you for the question. Tom, I actually wanted to spend some time on the international business because I think there's a lot of moving parts there that maybe are not fully appreciated. So maybe we can start with Europe. I mean, I think you called out some incremental pressure. It seems like you're expecting more. I'm not sure how much of that is tied to the fact that you were expecting maybe a tighter potato crop this year that ended up coming in better and so competitors feel the ability to kind of price discount a bit more on. So maybe if you can start with that on Europe. And then as it relates to Asia, calling out the incremental pressure and I think the pressure that you're seeing now, how do you think about that with already existing -- in light of the capacity that's coming? So why would it not necessarily get worse? In some of those markets, as this slide kind of outlines there's quite a bit of capacity that's expected to come online. So I know there's a lot there, but maybe if you could address again Europe and then the Asian markets kind of separately would be helpful.

Question: Peter Galbo - BofA Securities Inc. - Analyst : Okay. Thanks for that. And then just on the back of Andrew's question around EBITDA margins, if I can take it up to the gross margin level, there's been obviously quite a bit of deleverage as a result of, I think, idling the capacity. Bernadette, I think you called out some other factors that hopefully we can go through. But I guess the question is, if the deleverage -- is it more than you expected or are there just other manufacturing elements that have come in that again, this gross margin now we run out and at a significantly lower level? Thanks very 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. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Thomas Palmer - Citi - Analyst : Morning. Thanks for the question. I wanted to clarify on the customer losses that were not expected. To what extent was pricing the determinant of these losses? I know there was mention in Asia of some ERP challenges, so I'm just trying to understand like in customer service, which part of the consideration here with some of those lack of wins that were expected?

Question: Thomas Palmer - Citi - Analyst : Understood. Thank you. I did see the expanded buyback program. How aggressive, I guess, are you willing to be as you watch the shares, maybe, that (inaudible)?

Question: Thomas Palmer - Citi - Analyst : Thank you.

Question: Kenneth Goldman - J.P. Morgan - Analyst : Hi, the [activist] reiterated his opinion this morning that in addition to management changes, Lamb requires significant Board change or should be sold, just to quote them. I know you don't -- have every Board member's intention, but Tom, you're on the Board, you may have some insight here. I'm just curious as to your belief at this time that there will be meaningful Board changes that the Board is open to Lamb being sold? And if you can't comment, do you at least know if the company plans on issuing a formal response to the activist's letter?

Question: Kenneth Goldman - J.P. Morgan - Analyst : Okay. Following up, how do you see in terms of guidance, I know there's a lot of moving pieces in the back half, certainly some easier comparisons. Just as we think about underlying volume trends rate, excluding changes to customers, are you expecting any kind of improvement sequentially in consumer demand for your products? Again, just on a like-for-like basis, if that's even possible to kind of parse out?

Question: Kenneth Goldman - J.P. Morgan - Analyst : Thank you.

Question: Robert Moskow - TD Cowen - Analyst : Hi, thanks. Similar to Ken's question, are there any assumptions in your back half about regaining customers that you lost from the ERP disruption? Do you have to get new business wins in the back half starting from today in order to achieve those numbers?

Question: Robert Moskow - TD Cowen - Analyst : Okay. And a quick follow-up. You lost another chain customer in North America. Is there any concerns about reputation risk from the missteps in calendar 2024? What are your customers saying about their willingness to trust Lamb Weston as a supplier?

Question: Robert Moskow - TD Cowen - Analyst : Okay, thank you.

Question: Robert Dickerson - Jefferies - Analyst : Great. Thanks so much. Tom, maybe just kind of a basic question for you. On the [Connell] capacity, you don't see to Connell online over the next three, four years. What do you think drove those players to decide all that capacity there, just given the operating backdrop globally, number one. And then number two, we've always (inaudible) or spoken about certainly the fragmented market obviously in the United States with a ton of opportunity to [defragment] globally. But now, kind of what we're hearing as well, that fragmentation at [QS] actually is causing some of this issue because you have some of these smaller players that are medium and (inaudible). Let's add this new capacity because maybe we can get some of the margin, too, we can get some that profit, too. It just seems clearly like this is the first time this much has been added outside the US and doesn't sound like we're talking about kind of the core three other players that we normally discuss when we talk about in the US. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Robert Dickerson - Jefferies - Analyst : Okay. Fair enough. And then Bernadette, I think you got a little nitpicky here, but there is the one slide, right, when you kind of map out that CapEx. We talked about the CapEx kind of starting to come off, obviously [growth] CapEx from 2026. And I think the total numbers, so for CapEx is $550 million, which is similar to what you've spoken to in this past, but there is that little circle, right? It says 68%, which I'm assuming, as you look at the chart, there are 68% of sales implied. Now clearl,y you've guided to '25, right? We know in CapEx, we can kind of reverse engineer to get to what you think your implied sales would be in '26 to get to 68%? It seems a little high, let's say, on the sales side. Just to clarify, like you're very comfortable with the $550 million? I guess we'll see if it winds up being 68% of sales, put it that way.

Question: Alexia Howard - Bernstein Research - Analyst : Good morning, everyone. So [flowing] tends to be on the demand side of the equation, you talked a lot about capacity and competitors this morning. What does your research is telling you about the reasons for the weak consumer demand? And I imagine the reasons might be quite different between US and Europe. And specifically, are you seeing any impact at the moment about on the uptake of GLP-1 weight loss drugs you keep on hearing US on? I'm just wondering how that informs your expectations about improvement in demand going forward? And then I have a follow-up. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Alexia Howard - Bernstein Research - Analyst : Great. Thank you for that. And then as a follow-up, you mentioned (technical difficulty) some opportunities with nontraditional customers. Can I ask you about how large those markets are and exactly what they are that you're going after?

Question: Alexia Howard - Bernstein Research - Analyst : Thank you. I'll pass it on.

Question: Stephen Powers - Deutsche Bank - Analyst : Great. Thanks. I wanted to go back to capacity utilization from a slightly different perspective. When you talk about the low 90s utilization today, I mean, how does Lamb's utilization compared to that [emission] benchmark? I guess what I'm trying to get at is how much of the industry [slack] is in your business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Stephen Powers - Deutsche Bank - Analyst : Okay. And then I wanted to just dig back into the business that's been slower to win back than you would hope. I guess, to boil it down, I guess the question is really what's the sales pitch to those accounts? And is there any levers you can lean on besides price to the extent of the competition? You're now servicing those accounts -- is doing a good job.

Question: Stephen Powers - Deutsche Bank - Analyst : Got it. Thank you very much.

Question: Max Gumport - BNP Paribas - Analyst : Thanks for the question. I wanted to turn back to the comment on the 19% to 20% EBITDA margin being an estimate for the go-forward level in the current supply demand environment. So that does look to be roughly in line with how you're guiding towards the second-half EBITDA margin. But you've also observed to date that your earnings in '25 are temporarily depressed. Clearly, there's price investments going on. There's manufacturing inefficiencies. There's other pressures that could abate. And then you'll also be getting benefits from all the cost-cutting initiatives that you're just starting to get out there. So I'm trying to get more clarity on what you see as your normalized adjusted EBITDA margin and why it would not be higher than the 19% to 20% that you're expecting for the second half of this fiscal year? Thanks very 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. DECEMBER 19, 2024 / 1:00PM, LW.N - Q2 2025 Lamb Weston Holdings Inc Earnings Call

Question: Max Gumport - BNP Paribas - Analyst : Okay. I'll leave it there. Thank you.

Question: Matthew Smith - Stifel - Analyst : Hi, good morning. Tom, you talked about initiatives to improve the impact of the lower utilization for manufacturing. Can you just provide a little more color about how you address that both in the near term and over time? And along with that, you temporarily suspended production and some lines. Has the impact of that suspension -- has it been in line with your expectations? Or is it contributed to more of some of the production inefficiencies we've seen?

Question: Matthew Smith - Stifel - Analyst : Thank you, Tom. And one clarification. You mentioned your utilization rate or Lamb's utilization rate improving from here. Is that a reflection of the improving traffic trends? And I'll leave it there and pass it on. Thank you.

Question: Marc Torrente - Wells Fargo Securities - Analyst : Hey, good morning, and thank you for taking my questions. Just a little more on the utilization, just asking a different way. So you believe you're currently in line with industry rates in the low 90s and most of the forward incremental capacity you laid out through '28 is from competitors. So would you expect to be ahead of industry capacity utilization on the medium term?

Question: Marc Torrente - Wells Fargo Securities - Analyst : Okay. And then for finished goods inventory, elevated coming out of Q1, inventories being higher in Q2, any color on how much progress you had working through that during the quarter, where you are currently versus normalized levels? And when would you expect production at [line] model is (inaudible)?

Question: Marc Torrente - Wells Fargo Securities - Analyst : Okay, thanks.

Question: Carla Casella - J.P. Morgan - Analyst : Hi. Just one question on leverage. I know your CapEx is coming down next year. But looking at the balance and CapEx coming down, increased buyback, increased dividend, any change to your leverage target as you [get] there? I know you're having conversations with the agencies.

Question: Carla Casella - J.P. Morgan - Analyst : Okay, great. Thanks.