Lamb Weston (NYSE:LW) Reports Sales Below Analyst Estimates In Q2 Earnings, Stock Drops 15.4%
Potato products company Lamb Weston (NYSE:LW) fell short of analysts' expectations in Q2 CY2024, with revenue down 4.9% year on year to $1.61 billion. The company's full-year revenue guidance of $6.7 billion at the midpoint also came in 1.6% below analysts' estimates. It made a GAAP profit of $0.89 per share, down from its profit of $3.40 per share in the same quarter last year.
Is now the time to buy Lamb Weston? Find out in our full research report.
Lamb Weston (LW) Q2 CY2024 Highlights:
Revenue: $1.61 billion vs analyst estimates of $1.71 billion (5.5% miss)
EPS: $0.89 vs analyst expectations of $1.26 (29.4% miss)
Management's revenue guidance for the upcoming financial year 2025 is $6.7 billion at the midpoint, missing analyst estimates by 1.6% and implying 3.6% growth (vs 23.8% in FY2024)
Gross Margin (GAAP): 24.1%, in line with the same quarter last year
Free Cash Flow of $150.6 million is up from -$229.5 million in the previous quarter
Organic Revenue fell 5% year on year (47% in the same quarter last year)
Sales Volumes fell 8% year on year (23% in the same quarter last year)
Market Capitalization: $11.35 billion
“We are disappointed by our fourth quarter performance,” said Tom Werner, President and CEO.
Best known for its Grown in Idaho brand, Lamb Weston (NYSE:LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Shelf-Stable Food
As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales Growth
Lamb Weston is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's annualized revenue growth rate of 20.8% over the last three years was impressive as consumers bought more of its products.
This quarter, Lamb Weston missed Wall Street's estimates and reported a rather uninspiring 4.9% year-on-year revenue decline, generating $1.61 billion in revenue. Looking ahead, Wall Street expects sales to grow 4.8% over the next 12 months, an acceleration from this quarter.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Lamb Weston generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Lamb Weston's average quarterly volume growth was a robust 8.5%. Even with this splendid performance, we can see that most of the company's gains have come from price increases by looking at its 26.8% average organic revenue growth. The ability to sell more products while raising prices indicates Lamb Weston enjoys inelastic demand.
In Lamb Weston's Q2 2024, sales volumes dropped 8% year on year. This result was a reversal from the 23% year-on-year increase it posted 12 months ago. A one quarter hiccup shouldn't deter you from investing in a business. We'll be monitoring the company to see how things progress.
Key Takeaways from Lamb Weston's Q2 Results
We struggled to find many positives in these results. Its revenue and EPS missed while its full-year earnings forecast fell short of Wall Street's estimates. Overall, this was a bad quarter for Lamb Weston. The stock traded down 15.4% to $66.46 immediately after reporting.
Lamb Weston may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.