Shares of Lamb Weston Holdings (LW 0.98%) fell 19.4% on Thursday after the food processing company announced weaker-than-expected quarterly results.
The source of Lamb Weston's disappointing quarter
For its fiscal third quarter ended Feb. 25, 2024, Lamb Weston's net sales grew 16% year over year to $1.458 billion, including $357 million of sales from its previous acquisition of its LW EMEA joint venture in Europe. On the bottom line, that translated to an 18% decrease in adjusted (non-GAAP) net income to $175 million, or $1.20 per share. Analysts, on average, were modeling adjusted earnings of $1.45 per share on revenue closer to $1.65 billion.
According to CEO Tom Werner, the transition to a new enterprise resource planning (ERP) system was largely to blame for the company's underperformance during the quarter. "The ERP transition temporarily reduced the visibility of finished goods inventories located at distribution centers, which affected our ability to fill customer orders," Werner explained.
What's next for Lamb Weston shareholders?
Management also says the company has implemented systems adjustments and modified processes to normalize fulfillment rates going forward. In addition to this, the company saw "soft near-term restaurant traffic trends." As a result of these challenges, Lamb Weston reduced its full-year outlook for net sales of $6.54 billion to $6.6 billion (down from $6.8 billion to $7 billion previously) and adjusted earnings per share of $5.50 to $5.65 (down from $5.70 to $6.15 previously).
Investors can take solace in knowing that Lamb Weston's relative underperformance this quarter was a temporary issue rather than a symptom of broader market conditions. But it's also no surprise to see the stock pulling back hard today in response.
