Lamb Weston Stock Underperforms as Challenges Mount

Lamb Weston Holdings, Inc. (LW) stock underperformed on Monday, with the share price dropping 23.6% over the past six months. This decline is steeper than the 2.7% decline in its industry and the 0.4% deterioration in the broader Zacks Consumer Staple sector. In contrast, the S&P 500 has gained 10.3% during the same period. The company's underperformance can be attributed to several challenges it is facing, including weak restaurant traffic, increased competition, and a tough manufacturing environment.

Lamb Weston's second-quarter fiscal 2025 results fell below expectations due to higher-than-expected manufacturing costs and weaker volumes. The company experienced incremental customer share losses in its North American and International segments, driven by an increasingly competitive landscape. This is particularly visible in markets such as the Middle East and parts of Asia Pacific. As a result of these challenges, Lamb Weston's fiscal second-quarter top and bottom lines declined year over year and missed the Zacks Consensus Estimate. The company's price/mix decreased by 2%, thanks to planned investments in pricing and trade support, pricing adjustments in key international markets due to increased competition, and an unfavorable mix of channels and products. The quarterly volume fell 6% due to weak global restaurant traffic trends, customer share losses offset by gains, and the ongoing impact of the company's strategic decision last year to exit certain lower-priced and lower-margin businesses in Europe. In the North America segment, volume fell by 5%, while volumes in the International segment dropped by 6%.

Lamb Weston is grappling with high costs that are impacting its performance. In fiscal second quarter, the adjusted gross profit decreased by $134.9 million, reaching $343.5 million. This decline was due to increased manufacturing costs per pound, unfavorable price/mix, and reduced sales volumes. The increased manufacturing costs per pound were due to input cost inflation, particularly higher raw potato prices, inefficiencies, and increased transportation and warehousing costs. In addition, higher depreciation expenses contributed to the rise in costs.



Lamb Weston anticipates challenging conditions will persist through the remainder of fiscal 2025 and into fiscal 2026. These challenges are driven by accelerated capacity additions and continued softening in global frozen potato demand, mainly outside North America until demand improves and capacity expansion stabilizes. As a result, Lamb Weston is lowering its financial targets for fiscal 2025. The company has revised its annual net sales target range to $6.35-$6.45 billion, down from the previous range of $6.6 billion to $6.8 billion. Lamb Weston has lowered its adjusted net income guidance to $440-$460 million, with adjusted earnings per share (EPS) revised to $3.05 to $3.20 for fiscal 2025. Earlier, management had estimated adjusted net income of $600 million to $615 million and adjusted EPS of $4.15 to $4.35.

Analysts have a mixed view on Lamb Weston's stock, with 13 analysts providing 12-month price targets. The average target is 78, with a low estimate of 60 and a high estimate of 105. The average target predicts an increase of 23.71% from the current stock price of 63.05. However, the average analyst rating for LW stock from 13 stock analysts is "Buy," indicating that analysts believe this stock is likely to outperform the market over the next twelve months.



In conclusion, Lamb Weston's stock underperformed on Monday due to the company's challenges, including weak restaurant traffic, increased competition, and a tough manufacturing environment. The company's financial outlook for fiscal 2025 has been revised downward, and analysts have a mixed view on the stock's future performance. Investors should exercise caution and monitor the company's progress closely as it navigates these challenges.