Here’s how Lamb Weston (LW) plans to drive growth over the long term

Shares of Lamb Weston Holdings, Inc. (NYSE: LW) stayed red on Friday. The stock has gained 16% this year. The French fry giant kicked off its fiscal year 2024 on a strong note with solid growth in revenue and earnings. The company appears to be on a positive growth trajectory and it has outlined certain strategies to fuel its business over the long term.

Strong Q1 performance

In the first quarter of 2024, Lamb Weston’s net sales increased 48% year-over-year to $1.6 billion, with $375 million in sales driven by acquisitions. Excluding acquisitions, net sales grew 15%. Adjusted EPS more than doubled to $1.63 in the quarter.

Growth strategies

Lamb Weston’s efforts to drive sustainable and profitable growth are aided by a number of strategies. One of these is its focus on the growing frozen potato category. The company expects the category to grow through 2027 at a compounded annual growth rate of 2-4%.

Frozen potato volumes are expected to grow across all regions with low-single-digit percentage growth in North America and Europe and mid-single-digit percentage growth in Asia, and Middle East & Africa. Lamb Weston is adding processing capacity in each of its regions.

Lamb Weston has realigned its business into two segments – North America and International. Net sales in North America totaled $4.2 billion in 2023, reflecting an increase of 40% from 2021. The company is focusing on optimizing customer and product mix, driving retail growth, and expanding its total addressable market through innovation in this segment.

Net sales in the International segment grew 73% to $1.1 billion during the period from 2021-2023. Lamb Weston is working on driving volume growth and strengthening its share position in this segment. It is also focusing on optimizing customer and product mix in each region to boost profitability. LW sees opportunity for higher growth from international markets. The company estimates 34% of its net sales to come from International in 2024.

Lamb Weston is building production capabilities to support growing demand for higher-margin, premium products. It is also driving productivity programs to generate cost savings and efficiencies across its network.

Outlook  

For fiscal year 2024, Lamb Weston expects net sales of $6.8-7.0 billion, which represents organic growth of 6.5-8.5%. The guidance includes $1.1-1.2 billion of incremental sales from acquisitions. GAAP EPS is expected to be $5.47-5.92 while adjusted EPS is expected to be $5.50-5.95.

For the long term, LW expects net sales growth in the low-to-mid-single digits, driven by a balance of volume growth and price/mix. Adjusted EPS is expected to grow in the high single digits, driven by a flexible capital structure and execution of the company’s capital allocation strategies.