Contradictions Emerge in 2025-2026 Earnings Calls: North America Price/Mix, Margins, and Global Production Strategies

Date of Call: December 18, 2025

Financials Results

• Revenue: Net sales +1% (includes $24M FX benefit); constant-currency net sales essentially flat YOY; volume +8% in Q2
• Gross Margin: Adjusted gross margin 20.4% in the first half; second half expected flat to down versus first half (20.4%)

Guidance:

• Reaffirming fiscal 2026 outlook (includes a 53rd week).
• Expect continued volume growth and strong sales momentum; on track toward high end of sales guidance.
• North America H2 volumes to grow at or above H1; International H2 volumes expected flat YOY.
• Price/mix headwinds at constant currency will moderate in H2 vs H1.
• Adjusted gross margin H2 flat to down vs H1; adjusted SG&A to benefit from cost savings.
• FY tax rate 28%–29%; adjusted EBITDA guidance $1.0B–$1.2B, expect to finish near midpoint.

Business Commentary:

• Volume Growth and Customer Partnerships:
• Lamb Weston reported a volume growth of 8% in Q2 and 7% for the first half of the fiscal year.

• The growth was driven by customer wins, share gains, and strong retention, particularly in North America and Asia, despite softer restaurant traffic.

• North American Capacity Adjustment:

• The company reopened previously curtailed capacity in North America to ensure high customer fill rates amid strong demand.

• This decision was made due to increased volume, with North America operating at low 90s utilization rates, necessitating additional capacity to maintain service levels.

• International Market Challenges and Strategy:

• In international markets, specifically Europe, a strong potato crop coincided with soft restaurant traffic, exerting pricing pressure.

• Lamb Weston is actively working to rebalance supply and demand and is investing in new markets like Latin America to counter these dynamics and capture long-term growth opportunities.

• Cost Savings and Efficiency Improvements:

• Lamb Weston's cost savings initiatives are on track, contributing to profitability improvements despite pricing headwinds.
• The company is focusing on global supply chain optimization and reducing volatility through customer contracting and raw procurement strategies.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized progress and momentum—"building momentum", "volume growth was up 8%"—while also noting headwinds: "adjusted EBITDA declined $9 million to $286 million", international pricing and ramp costs, and they expect to finish near the midpoint of $1.0B–$1.2B EBITDA. Comments were cautiously optimistic but pragmatic about risks.

Q&A:

• Question from Thomas Palmer (JPMorgan): Should we expect substantive production actions in Europe (beyond reducing shifts) to rebalance supply/demand, and will North America see a seasonal uptick in Q3?
  Response: They confirmed a single line curtailment in Europe as part of global supply/demand rebalancing and said North America will see continued volume strength (mix-driven headwinds noted) with typical seasonality moderated in H2.

• Question from Peter Galbo (Bank of America): Has competition intensified in Asia and Asian export markets since the last call?
  Response: Added regional capacity has pressured exports and pricing, but they remain confident in international opportunity—China/APAC showing strength and Latin America (Argentina facility) positioned for growth.

• Question from Peter Galbo (Bank of America): Does the 'flat to down' H2 gross-margin comment apply to each quarter (Q3 and Q4)?
  Response: Yes—H2 guidance covers both quarters: expect a flatter-than-normal Q3 and a further step-down in Q4 due to mix, pricing headwinds and Argentina ramp costs.

• Question from Matthew Smith (Stifel): Are contract pricing outcomes in line with expectations and is a low-single-digit NA price/mix headwind still the right framework?
  Response: They expect price/mix to moderate in H2 versus H1 but emphasize that mix (growth in chain business and shift to private label) is a pronounced driver of the headwind.

• Question from Matthew Smith (Stifel): Will the mix headwind persist into next year?
  Response: They will monitor the trend, but expect the mix dynamics to persist through the balance of this year and continue to be a factor near-term.

• Question from Robert Moskow (TD Cowen): Why reopen NA capacity, any margin drag, and is this permanent?
  Response: Reopened lines to relieve very high utilization (low-90s %); improved run rates and absorption reduce factory burden—no expected cost drag and lines will remain open going forward.

• Question from Alexia Howard (Bernstein): What execution changes (discipline, accountability, metrics) are driving improved performance?
  Response: They instituted clear supply-chain accountabilities, KPI scorecards (with AlixPartners) and investments in demand/supply planning to improve predictability and execution.

• Question from Max Andrew Gumport (BNP): What scenarios could push results to the lower half of EBITDA guidance and why not raise the low end now?
  Response: Key downside risks are international price/mix headwinds, Argentina start-up/ramp costs and Europe underutilization; prudence reflects those risks so they expect to finish nearer the midpoint.

• Question from Scott Marks (Jefferies): How are you thinking about current trade support levels for customers and the reported added international capacity vs prior-paused projects?
  Response: They selectively defended pricing for strategic customers to retain growth-driving accounts; pace of new capacity announcements has slowed, though some capacity was added in developing markets—expect industry rationalization over time.

• Question from Marc Torrente (Wells Fargo Securities): How much of NA H2 volume visibility is driven by the 53rd week versus underlying momentum, and any recent traffic trend changes?
  Response: H2 volume outlook is largely driven by underlying chain momentum plus the 53rd week; international expected flat and November data showed traffic remaining soft consistent with prepared remarks.

• Question from Carla Casella (JPMorgan): Where does overall industry frozen capacity stand and does it vary by region?
  Response: Capacity varies by region; added capacity in some developing markets has reduced European exports amid a strong crop, but they expect rationalization and will manage their footprint accordingly.

• Question from William Reuter (Bank of America): Are you conceding pricing due to past execution issues and will high fill rates enable better pricing later; how does leverage affect buybacks?
  Response: They don't believe they're paying undue penalties—NA is strong and mix explains price/mix declines; capital-allocation priorities unchanged: invest in business, return cash and pursue opportunistic buybacks while maintaining a strong balance sheet.

Contradiction Point 1

North America Price/Mix Trajectory

It involves differing expectations for the price/mix trajectory in North America, which directly impacts revenue forecasting and investor expectations.

How is the moderation in North America's price/mix drag impacting your outlook? - Matthew Smith (Stifel, Nicolaus & Company)

20251219-2026 Q2: Price/mix is expected to be down more in the first half, driven by price and mix components. - [Bernadette Madarieta](CFO)

Do you still expect a low-to-mid single-digit price/mix decline year-over-year in the first fiscal half? - Andrew Lazar (Barclays Bank PLC)

2026Q1: First half, on a constant currency basis, we expect mid- to high single-digit decrease in price, moderating to low to mid in the back half. - [Bernadette Madarieta](CFO)

Contradiction Point 2

Gross Margin Seasonality

It involves differing expectations for gross margin seasonality, which is critical for understanding the company's financial performance and forecasting.

Will the flat or down guidance for second-half gross margin apply to Q2 and Q3? - Peter Galbo (Bank of America)

20251219-2026 Q2: Gross margins for the second half of the year are currently expected to be flat with the first half of the year. - [Bernadette Madarieta](CFO)

Will historical seasonality in gross margins return in the second half of the year? - Peter Galbo (BofA Securities)

2026Q1: Yes, we expect gross margin to be flat with Q2 and step up in Q3 as historically, followed by a seasonal decline in Q4. - [Bernadette Madarieta](CFO)

Contradiction Point 3

North America Production and Capacity Utilization

It involves changes in production strategies, specifically regarding capacity utilization and reopening of lines, which are critical for operational efficiency and financial performance.

Is a temporary production reduction expected in Europe, and what actions are being taken? - Thomas Palmer (JPMorgan)

20251219-2026 Q2: We've restarted lines in North America and curtailed a single line in Europe. - [Mike Smith](CEO)

How confident are you that international capacity won't shift? - Scott Michael Marks (Jefferies LLC)

2025Q2: We believe the industry has been rational in capacity decisions. We estimate that at least $1 billion to $1.5 billion of new capacity has been delayed or canceled. - [Michael Jared Smith](CEO)

Contradiction Point 4

International Market Dynamics and Capacity Additions

It involves changes in international market strategies, specifically regarding capacity additions and market dynamics, which are critical for global competitiveness and revenue growth.

Can you update on Asia's market dynamics and increased competition in export markets? - Peter Galbo (Bank of America)

20251219-2026 Q2: We're seeing strength in China and APAC, but there's a strong crop in Europe impacting raw costs. Some capacity has been added in developing markets, affecting exports from Europe. - [Mike Smith](CEO)

Are you confident that international capacity won't proceed? - Scott Michael Marks (Jefferies LLC)

2025Q2: We are not pursuing global potato market share for the sake of market share. But rather we are pursuing the right capacity in the right market, and we are doing that selectively. - [Michael Jared Smith](CEO)

Contradiction Point 5

Impact of Price/Mix Shifts on Gross Margins

It involves differing explanations of how price/mix shifts are affecting gross margins, which are crucial for understanding the company's financial performance.

Is there a temporary production pullback anticipated in Europe, and if so, what steps are being taken? - Thomas Palmer(JPMorgan)

20251219-2026 Q2: The mix impact in North America is significant, with a higher proportion of business with multinational chain customers and a shift from branded to private label in the retail channel, affecting gross margins. - [Bernadette Madarieta](CFO)

Why is the 330-basis-point headwind impacting 4Q gross margin, and what other factors contributed to the 700-basis-point decline? - Tom Palmer(Citi)

2025Q3: The 330 basis points are due to higher fixed cost absorption because of curtailed production lines. Another 100 basis points involve input cost increases, but these are not material, and efforts are focused on inventory absorption. - [Bernadette Madarieta](CFO)