Lamb Weston (LW 3.35%) stock jumped 9.8% on Thursday, following the leading frozen-potato products supplier's release of a better-than-expected report for its second quarter of fiscal 2023 on Jan. 5.
Shares of Lamb Weston have been nearly as hot as the cooking oil that many of its customers -- which include such fast-food giants as McDonald's -- use to fry the frozen french fries and other food products that it supplies them. Shares have returned 42% over the one-year period through Jan. 8, while the S&P 500 index is down nearly 17% over this period.
Image source: Lamb Weston.
Lamb Weston's key numbers
| Metric | Fiscal Q2 2022 | Fiscal Q2 2023 | Change |
|---|---|---|---|
| Revenue | $1.01 billion | $1.28 billion | 27% |
| GAAP operating income | $114.4 million | $271.8 million | 138% |
| GAAP net income | $32.5 million | $103.1 million | 217% |
| Adjusted net income | $68.3 million | $185.4 million | 171% |
| GAAP earnings per share (EPS) | $0.22 | $0.71 | 223% |
| Adjusted EPS | $0.47 | $1.28 | 172% |
Data source: Lamb Weston. Fiscal Q2 2023 ended Nov. 27, 2022. GAAP = generally accepted accounting principles.
Wall Street was looking for adjusted EPS of $0.74 on revenue of $1.16 billion, so the company sped by both expectations.
In the first half of the fiscal year, Lamb Weston generated cash of $288 million running its operations, up 39% from the year-ago period. It ended the period with cash and cash equivalents of $419.4 million and long-term debt of $2.7 billion.
Segment results
| Segment | Fiscal Q2 2023 Revenue | Change YOY | Fiscal Q2 2023 Product Contribution Margin* | Change YOY |
|---|---|---|---|---|
| Global | $692.8 million | 34% | $171.0 million | 111% |
| Food- Service | $357.9 million | 14% | $130.8 million | 25% |
| Retail | $191.5 million | 34% | $65.7 million | 207% |
| Other | $34.3 million | 3% | $7.5 million | 221% |
| Total | $1.28 billion | 27% | $375.0 million | 87% |
Data source: Lamb Weston. YOY = year over year. *Segment sales minus variable costs incurred to produce those sales.
The company's global and retail segments drove its growth in revenue and profitability, although the food-service business also had a solid quarter.
The segmentation is not straightforward, so investors should know that the global segment consists of the top 100 North American-based fast-food and other restaurant chain customers, as well as the company's international sales. The food-service segment services North American food-service distributors and restaurant chains outside the top 100 North American-based restaurant chain customers.
NYSE: LW
Key Data Points
What the CEO had to say
Here's most of what CEO Tom Werner had to say in the earnings release:
We delivered strong top- and bottom-line results in the quarter. Because of our financial performance in the first half of fiscal 2023 and our broad operating momentum, we have raised our annual sales, gross margin, and earnings targets. We expect the continued implementation of [price increases] to counter higher input and potato costs to drive our financial results in the second half, while our volume performance will continue to be affected by supply chain constraints and inflationary pressures on consumers.
In addition, we look forward to beginning to capture strategic, commercial, and operational benefits from the acquisition of our partner's interest in our European joint venture [JV], which we currently expect to close during our fiscal fourth quarter.
Werner is referring to Lamb Weston/Meijer (LWM), which is currently a 50%/50% JV between Lamb Weston and Netherlands-based Meijer Frozen Foods. In October, Lamb Weston entered into an agreement to purchase its partner's interest in the JV for 700 million euros in cash and common stock of Lamb Weston.
Full-year guidance raised
For fiscal-year 2023, management raised its outlook as follows:
- Revenue of $4.8 billion to $4.9 billion, up from the prior guidance of the high end of the $4.7 billion to $4.8 billion range. This would represent annual growth of 17% to 20%. (Guidance does not reflect the pending acquisition of LWM.)
- Adjusted EPS of $3.75 to $4.00, up from $2.45 to $2.85. This would represent annual growth of 80% to 92%.
A stock worth watching
Lamb Weston stock is worth a spot on many investors' watch lists. The company has a solid track record of robust revenue and earnings growth (except during the worst of the pandemic). The stock pays a dividend, currently yielding about 1.1%. And last month, the company announced it was raising its quarterly cash dividend by 14%.
