Shares of leading frozen potato supplier Lamb Weston (LW 25.94%) plummeted 22% as of 11 a.m. ET on Friday after the French fry juggernaut provided underwhelming earnings again. Following today's drop, Lamb Weston is down 60% from its all-time high in 2023 and trades at its lowest share price since 2017.
NYSE: LW
Key Data Points
During the second quarter, the company grew sales by 1% and delivered adjusted earnings per share of $0.69, which beat Wall Street's expectations. However, management offered full-year guidance that spooked the market, saying that revenue would be flat year-over-year, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would be down 11% at the midpoint.
Lamb Weston: sales volume up, pricing down
The good news for Lamb Weston in Q2 was that sales volume grew by 8% in North America and 7% in its international markets. However, due to strong potato crops and the continued weakness in the quick-service restaurant industry, the company saw its pricing mix drop 8% in both markets, offsetting its volume gains.
Image source: Getty Images.
Making matters worse, Lamb Weston's EBITDA and free cash flow (FCF) generation remain in a state of flux as it ramps up production at its new processing plant in Argentina. Though management expects to realize cost savings of $100 million in 2026 and $250 million by 2028, its guidance for declining adjusted EBITDA this year disappointed the market.
Lamb Weston has spent heavily on capex recently -- over $1 billion in 2024 versus $400 million over the last year -- so 2026 will be a pivotal year for the company to show that its investments will turn into market share gains. If the company can show it is taking share after this capex spending and revenue returns to growth, Lamb Weston could be a steal, generating $900 million in cash from operations (CFO) compared to its enterprise value of $12.2 billion (13 times CFO).
That said, I'm not really interested in the company while it's in the midst of a turnaround, but it could be intriguing to value investors.
