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LW

Lamb Weston Holdings, Inc. (LW)·Q2 2025 Earnings Summary

Executive Summary

  • Net sales declined 8% year over year to $1.60B; GAAP EPS was -$0.25 and Adjusted EPS was $0.66, with Adjusted EBITDA down 25% to $281.9M, driven by softer volumes, competitive pricing internationally, and higher manufacturing costs .
  • Fiscal 2025 guidance was cut: net sales to $6.35–$6.45B, Adjusted EBITDA to $1.17–$1.21B, and Adjusted EPS to $3.05–$3.20; tax rate raised to ~28%; management expects a more competitive environment and lower capacity utilization through FY25–FY26 .
  • Board increased share repurchase authorization by $250M (to $750M total, ~$558M remaining) and raised the quarterly dividend to $0.37, signaling continued capital return despite near-term headwinds .
  • CEO transition announced: COO Michael J. Smith to succeed Tom Werner effective January 3, 2025; succession planning suggests operational focus under new leadership, a potential catalyst alongside guidance reset and buyback flexibility .
  • Management framed go-forward normalized EBITDA margins at 19–20% given supply/demand and capacity additions; execution on restructuring and cost initiatives is intended to protect profitability and free cash flow .

What Went Well and What Went Wrong

What Went Well

  • Increased capital returns: dividend raised to $0.37/share and buyback authorization increased by $250M (to $750M total; ~$558M remaining capacity) .
  • Cost actions underway: restructuring expected to deliver ~$55M FY25 pre-tax savings and ~$85M annualized in FY26; SG&A guided to the top of $680–$690M but still supported by savings .
  • Liquidity solid: $79M cash and ~$$1.212B available under the revolver; long-term capex slated to step down in FY26 (to ~$550M including ~$150M environmental), improving free cash flow trajectory .

Management quotes:

  • “We are reducing our fiscal 2025 financial targets” due to “accelerating rate of capacity additions” and soft demand, especially outside North America .
  • “We remain on track to deliver on the $55 million of cost savings associated with this plan in fiscal 2025 and annualized cost savings of $85 million in fiscal 2026” .
  • “Today, we announced a $250 million increase to our share repurchase authorization… With respect to dividends, we declared a $0.01 increase in our quarterly dividend to $0.37 per share” .

What Went Wrong

  • Volume and price/mix headwinds: overall volume -6% and price/mix -2%; North America volume -5% and price/mix -3%; International volume -6%, price/mix flat; competitive pricing pressure notable in International .
  • Higher manufacturing costs per pound (inflation in raw potatoes, utilization inefficiencies, higher transportation/warehousing, and elevated depreciation on recent expansions) compressed margins; adjusted gross profit declined $135M YoY .
  • Restructuring charges of $159.1M pre-tax in Q2 (cost of sales $75.5M; restructuring $74.6M; JV $9.0M) drove GAAP loss; effective tax rate distorted to -59% by items (underlying ~25.5%) .

Financial Results

Quarterly Performance

MetricQ4 2024Q1 2025Q2 2025
Net Sales ($USD Billions)$1.612 $1.654 $1.601
GAAP Diluted EPS ($)$0.89 $0.88 -$0.25
Adjusted Diluted EPS ($)$0.78 $0.73 $0.66
Adjusted EBITDA ($USD Millions)$283.4 $289.9 $281.9

Price/Mix and Volume Trend

CategoryQ4 2024Q1 2025Q2 2025
Overall Price/Mix (%)+3% +2% -2%
Overall Volume (%)-8% -3% -6%
North America Price/Mix (%)+3% +1% -3%
North America Volume (%)-7% -4% -5%
International Price/Mix (%)+2% +5% 0%
International Volume (%)-9% -1% -6%

Segment Breakdown (Q2 2025)

SegmentNet Sales ($USD Millions)Adjusted EBITDA ($USD Millions)
North America$1,072.1 $266.7
International$528.8 $47.4

Additional P&L and Cash Flow Details (Q2 2025 and YTD)

  • Gross profit: $277.8M in Q2; adjusted gross profit $343.5M; adjusted SG&A $165.2M .
  • YTD (26 weeks): operating cash flow $429.3M; capex net of blue-chip swap proceeds $486.4M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2025$6.6–$6.8B $6.35–$6.45B Lowered
GAAP Net IncomeFY 2025$395–$445M $330–$350M Lowered
GAAP Diluted EPSFY 2025$2.70–$3.15 $2.30–$2.45 Lowered
Adjusted EBITDAFY 2025~$1.38B $1.17–$1.21B Lowered
Adjusted Net IncomeFY 2025$600–$615M $440–$460M Lowered
Adjusted Diluted EPSFY 2025$4.15–$4.35 $3.05–$3.20 Lowered
Adjusted SG&AFY 2025$680–$690M (reduced from $740–$750M) Top of $680–$690M Maintained (top end)
Effective Tax Rate (ex items)FY 2025~25% ~28% Raised
Depreciation & AmortizationFY 2025~$375M ~$375M Maintained
Capex (ex acquisitions)FY 2025~$750M (reduced from $850M) ~$750M Maintained
Capital ReturnFY 2025—Dividend raised to $0.37; buyback authorization to $750M total Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
Supply/demand and capacitySoft restaurant traffic; ERP impacts; voluntary product withdrawal Restructuring announced; Connell closure (~5% NA capacity); temp curtailments Industry may add up to 8.6B lbs capacity by 2028; utilization mid–high 80s; LW in low 90s post actions More challenging; added supply vs demand
Pricing/international competitionPricing carryover supported mix Competitive pricing; volume recovery targeted Incremental pricing pressure in APAC/LatAm; moderating inflation-driven pricing in EMEA More competitive
ERP and operationsERP transition hurt FY24 orders ERP phase deferred; SG&A amortization; stabilization focus Incremental depreciation; start-up issues improving; continued ERP amortization Stabilizing; amortization persists
Restructuring/costNoted FY24 actions and voluntary withdrawal Plan for ~$55M FY25 savings; $200–$250M charges Executing; $159.1M Q2 charges; FY26 savings ~$85M Execution underway
Potato crop and input costsFY24 raw potato write-offs; inflation NA crop slightly above average; EU crop in line; NA 3% contract price decrease benefits from Q3 Higher raw potato costs driving per-pound cost; start-up costs Mixed; relief from NA contracts later
Environmental capex—~$500M over 5 years wastewater projects; ~$150M FY26 Reiterated FY26 ~$150M environmental spend Elevated regulatory spend
Capital returnsFY24 buybacks/dividends Q1 buyback $82M; $52M dividends Buyback authorization raised; dividend increased Accretive; FCF inflection later
Activism/governance——Activist letter noted; management defers comment; CEO transition announced Governance changes possible

Management Commentary

  • “We expect challenging conditions to persist through the remainder of fiscal 2025 and into fiscal 2026, driven primarily by an accelerating rate of capacity additions and continued near-term softening of global frozen potato demand… As a result, we are reducing our fiscal 2025 financial targets” (Tom Werner) .
  • “We remain on track to deliver on the $55 million of cost savings… in fiscal 2025 and annualized cost savings of $85 million in fiscal 2026” (Tom Werner) .
  • “Nearly 1/3 of the $190 million reduction in our annual adjusted EBITDA target reflects the shortfall in our performance in the second quarter… most of the remaining reduction… is due to the impact of a more competitive environment in our key international markets” (CFO Bernadette Madarieta) .
  • “Today, we announced a $250 million increase to our share repurchase authorization… and declared a $0.37 quarterly dividend” (CFO Bernadette Madarieta) .
  • “Assuming all that capacity comes online… go-forward EBITDA… 19% to 20%” (Tom Werner) .

Q&A Highlights

  • Normalized margin outlook: Management sees 19–20% EBITDA margin near-term; will look to offset inflation over time; near-term pressures persist (pricing investments, inefficiencies) .
  • International dynamics: EU potato crop improved late; competitive pricing limits pass-through; APAC increasingly an export market; share losses being addressed .
  • Operational efficiency: Unplanned downtime and start-up issues (Kruiningen, American Falls) pressured throughput but are improving under new Chief Supply Chain Officer .
  • Pricing and customer retention: Competitive environment; greater pricing investments expected in balance of year; efforts to regain smaller/regional customers continue .
  • Capital returns and leverage: Opportunistic buybacks expected as FCF improves in H2; leverage target unchanged at ~3.5x (current ~3.4x TTM) .
  • Activism: Management declined to comment on activist demands; focused call on earnings and transition .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable due to data access limits during this session; therefore beat/miss vs consensus cannot be provided. Management stated results were “below our expectations,” but that refers to internal targets, not Street consensus .
  • Given the lowered FY25 guidance (sales, Adjusted EBITDA, Adjusted EPS), Street estimates likely need to adjust down to align with the updated ranges .

Key Takeaways for Investors

  • Guidance reset lowers the bar; near-term narrative centers on competitive pricing internationally, volume softness, and manufacturing cost headwinds—risk to margins persists into FY26 absent demand recovery .
  • Structural margin reset to ~19–20% EBITDA near term reflects added capacity and lower utilization; execution on restructuring and operational improvements will be key to stabilizing profitability .
  • Capital return is a support: dividend increase and expanded buyback authorization provide flexibility; H2 FCF tailwind as capex moderates and inventory/work capital rationalizes .
  • Watch International and North America channel mix: price investments in NA and competitive pricing in APAC/LatAm/EMEA weigh on price/mix; incremental wins expected to support H2 volume but base demand remains the swing factor .
  • Operational KPIs: monitor throughput improvements and cost per pound normalization as start-up issues abate and curtailments balance inventory; these are direct levers to margin stabilization .
  • Governance/leadership: CEO transition to Mike Smith introduces potential operational focus; activist pressure could catalyze strategic actions (portfolio, board), though management is not commenting at this time .
  • Trading framework: Short term—stock likely reacts to guidance cut and margin reset vs capital return; medium term—execution on cost, stabilization of demand, and capacity discipline across the industry will determine multiple and estimate trajectory .