Lamb Weston (NYSE: LW) shares jumped almost 8% on April 7 after the company delivered mixed fiscal third-quarter results but updated its FY2022 guidance, which projects net sales growth ahead of the long-term targets.
Lamb Weston Holdings, Inc. is an American food processing company that engages in the production, distribution, and marketing of value-added frozen potato products.
Meaningful execution of pricing actions offset input, manufacturing, and supply chain cost inflationary pressures, driving the earnings beat.
Q3 Mixed Results
Adjusted earnings of $0.73 per share grew 62% year-over-year and massively beat analysts’ expectations of $0.45 per share. The company reported earnings of $0.45 per share for the prior-year period.
However, revenues jumped 7% year-over-year to $955 million and exceeded consensus estimates of $27.82 billion.
The increase in revenues reflected a surge in price mix, which increased 12% driven by positive pricing actions across all the business segments that offset input, manufacturing, and transportation cost inflation.
Updated Fiscal 2022 Outlook
Based on robust fiscal Q3 results, management updated financial guidance for FY2022. The company now forecasts net sales growth above its long-term target range of low-to-mid single digits.
Positively, gross margin is now expected to be in the range of 19% to 20%, versus the prior guided range of 18% to 20%.
However, the company stated that net income and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will remain pressured through the remainder of fiscal 2022 due to higher potato, input, and transportation costs.
CEO Comments
LW CEO, Tom Werner, commented, “We plan to continue to execute on our pricing, productivity and cost management actions to mitigate the effect of inflation, and drive run-rate and throughput improvements in our factories.”
He further added, “Our capacity expansions in Idaho and China are on schedule, and we remain confident that continuing to invest in our business and executing on our strategies will have us well positioned to support the needs of customers and drive long-term growth.”
Wall Street’s Take
Following the upbeat earnings, BofA Securities analyst Peter Galbo increased the price target on Lamb Weston to $85 from $76, and reiterated a Buy rating.
Turning to Wall Street, the analyst consensus is also optimistic about Lamb Weston, with a Strong Buy rating based on three Buys and one Hold. The average Lamb Weston Holdings price target of $71.50 indicates an upside potential of 9.56%.
Investors Weigh In
At the time of writing, TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Lamb Weston, with 5.2% of investors increasing their exposure to VER stock over the past 30 days.
Bottom-Line
By implementing the pricing actions at the right time, Lamb Weston has aced the current macro headwinds of input, manufacturing, and supply chain cost inflation, as well as the Omicron variant negatively impacting demand, production, and distribution operations.
Likewise, it remains resolute to beat its long-term sales target as it continues to mitigate the rising costs.
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