Categories Analysis, Earnings, Retail

Earnings preview: Costs to hurt Lamb Weston Q3 results

Lamb Weston Holdings Inc. (LW) is scheduled to report its earnings results for the third quarter of 2019 on Tuesday before the market opens. The top line will be benefited by pricing actions, favorable mix, and growth in its Global and Retail segments while higher costs and expenses are likely to hurt the bottom line. The results will be hurt by rising input costs.

However, the limited time offers innovations are likely to benefit the company that could fuel growth and market share gains. Lamb Weston is expected to be positive about further prospects from the limited time offers, which could contribute significantly to volume growth in the Global segment.

For the past few quarters, the company has experienced rising selling, general and administrative expenses. And it is expected that the costs could rise for fiscal 2019 due to planned investments for upgrading information systems and enterprise resource planning infrastructure. Also, the company predicts higher warehousing, transportation, input, and manufacturing costs to continue in fiscal 2019.

Lamb Weston innovation center
Courtesy: Lamb Weston

Analysts expect Lamb Weston to report earnings of $0.82 per share on revenue of $895.93 million for the third quarter. In comparison, during the previous year quarter, the company posted a profit of $0.91 per share on revenue of $863.4 million. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $81 per share in the next 52 weeks.

For the second quarter, Lamb Weston reported a 55% jump in earnings as pricing actions, favorable mix, and growth in its Global and Retail segments drove revenues higher. A lower corporate tax rate related to the US Tax Act increased diluted earnings by $0.10 per share and the balance increase reflects growth in income from operations.

Also read: Conagra Brands posts upbeat Q3 earnings

Price/mix increased 6% for the second quarter due to pricing actions and favorable mix. Volume rose 5% driven by growth in the company’s Global and Retail segments. Sales from the Global segment increased by 13% driven by the growth in sales to strategic customers in the US and key international markets and improved mix as well as the benefit of limited time product offerings.

For fiscal 2019, the company had expected net sales growth in the mid-to-high single digit range and adjusted EBITDA including unconsolidated joint ventures in the range of $870 million to $880 million. Price/mix is predicted to be higher in the first half of fiscal 2019 versus the second half, reflecting the carryover impact of customer contract pricing structures that took effect beginning in the second half of fiscal 2018.

Shares of Lamb Weston opened higher on Friday and is trading in the green territory. The stock has risen over 33% in the past year and over 1% in the past three months.


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