Lam Weston Holdings Co., Ltd. (LW – Free Report) released strong results for the second quarter of fiscal 2023, with top and bottom lines beating Zachs Consensus estimates. Both sales and profits exceeded those of the same period of the previous year. Management also increased its fiscal 2023 net sales and earnings guidance range.
quarter details
LW’s earnings came in at $1.28 per share, beating the Sachs Consensus estimate of 74 cents. Revenue increased 172% from the reported figures in the prior year quarter.
Net sales reached $1,276.5 million, up 27% year over year. The topline exceeded the Zachs consensus estimate of $1,159.1 million. The price/mix he increased by 30%. This reflects benefits from product and freight pricing across all core business units implemented to combat rising input, manufacturing and transportation costs. Sales volume fell by 3% from his inability to fully meet customer demand across foodservice and retail channels.
The negative impact of supply chain-related issues, such as the impact of product shortages and the onboarding of new production workers, continued to hamper production utilization and manufacturing unit throughput, as well as customer order fulfillment rates. Declines in casual dining and full-service restaurant traffic across the United States in the challenging macroeconomic environment also weighed on volume to some extent.
Gross profit was $381.6 million, an increase of $176.1 million. This was because pricing gains more than offset the negative impact of lower sales volumes as well as higher production and distribution costs per pound. The increase in cost per pound primarily reflects double-digit cost increases in key inputs such as cooking oils, raw materials – grains and starches, labor, transportation and warehousing. In addition, higher costs due to the effects of extreme summer heat have also driven higher costs per pound. The impact of supply chain disruptions was a headwind.
SG&A expenses increased $18.7 million to $109.8 million. Adjusted EBITDA (including unconsolidated joint ventures) increased 92% to $334.6 million. This was due to an increase in operating income.
segment analysis
sale at global The segment grew 34% to $692.8 million. Volume increased 3% and price/mix increased 31%. Price/mix benefited from domestic and international product and freight pricing in addition to positive mix. Increased international shipments and his QSR limited-edition sales prowess in the domestic market have boosted volume in this segment. Product contribution margin for this segment increased 111% to $171 million.
food service Sales increased 14% to $357.9 million. Volume decreased 11% and price/mix increased 25%. The favorable pricing structure reflects the pricing initiatives implemented in fiscal year 2023, as well as carryover gains from product and freight pricing actions to mitigate inflation. Volume was hit by run-rate and throughput supply chain disruptions, as well as softening restaurant traffic and casual consumer demand. There are many reasons including dining and other full service restaurants. Product contribution margin increased 25% to $130.8 million.
in the retail Segment sales increased 34 percent to $191.5 million. Price/mix was up 43%, but volume was down 9%. Price/Mix benefited from pricing actions carried forward into FY23, as well as the impact of pricing actions carried forward in the branded and private label portfolios. Among other things, supply chain-related issues impacted sales volumes. Product Contribution Margin jumped 207% to his $65.7 million.
Other financial details
Lamb Weston ended the quarter with cash and cash equivalents of $419.4 million, long-term and financing obligations of $2,701.1 million (excluding the current portion) and total shareholders’ equity of $573 million . The company generated $288 million in net cash from his 26 weeks of operations ending November 27, 2022.
Reported capital spending for the quarter reached $270.3 million. For fiscal 2023, the company expects cash to be used for capital expenditures in the range of $475 million to $525 million.
During the quarter reported, management paid dividends worth $35.3 million.
Image Source: Sachs Investment Research
guidance
For fiscal 2023, management currently expects net sales to increase in the range of $4.8 billion to $4.9 billion. Previously, the company expected net sales to be at the high end of his $4.7 billion to $4.8 billion range.
Net sales growth may be driven by pricing gains. Management expects volume to be under pressure in the second half of fiscal 2023 as ongoing supply chain disruptions negatively impact utilization and throughput across manufacturing units. A potential slowdown in restaurant traffic in a challenging macroeconomic environment could impact volumes.
Lamb Weston expects SG&A expenses in the range of $525 million to $550 million, compared with the previous range of $475 million to $500 million. Adjusted EBITDA (including unconsolidated joint ventures) could be in the range of $1.05 billion to $1.1 billion, compared with the previous forecast of $840 million to $910 million .
Adjusted net income is currently expected to be in the range of $540 million to $580 million. Adjusted diluted earnings per share (EPS) is assumed to be in the range of $3.75 to $4.00 from the previously provided guidance range of $2.45 to $2.85.
Management expects interest expense in 2023 to be approximately $115 million, with an effective tax rate of approximately 24%. In addition, we anticipate depreciation charges of approximately $210 million.
The Zacks Rank 3 (Hold) company’s share price has risen 18.9% over the past three months, compared to the industry’s 4.9% growth rate.
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