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Lamb Weston Looks Promising on LTO Focus & Solid Price/Mix

Zacks Equity Research

Lamb Weston Holdings Inc. LW has been gaining from solid top-line trend, backed by sturdy volume growth as well as gains from acquisition and favorable price/mix impacts. Moreover, the company’s focus on limited time offerings (LTOs) and expansion efforts are driving performance. Notably, this trend continued in second-quarter fiscal 2020, with the top and the bottom line increasing year on year.

In fact, management raised net sales and adjusted EBITDA guidance for fiscal 2020. It anticipates net sales to increase at high end of mid-single digit range from its previous guidance of a mid-single digits growth. Adjusted EBITDA (including unconsolidated joint ventures) is expected in the range of $965-$985 million, up from its previous guidance of $950-$970 million

Clearly, encouraging performance and a positive outlook have raised analysts’ optimism regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings has inched up 1.4% to $3.50 in the past 30 days. Moreover, Lamb Weston’s shares have increased 8.5% since its earnings release.

In fact, Lamb Weston’s impressive performance has been boosting investors’ sentiment for long. This Zacks Rank #2 (Buy) stock has rallied 38.3% in the past six months compared with the industry’s growth of 5.8%.



What’s Driving Lamb Weston’s Performance?

Lamb Weston boasts a solid top-line trend. Markedly, sales grew 12% year on year and surpassed the Zacks Consensus Estimate for the 13th straight time, when it reported second-quarter fiscal 2020 results. The upside was supported by volume growth of 10%, driven by strength in the Global and Foodservice segments, gains from acquisition as well as favorable price/mix impacts.

Notably, price/mix rose 1% and 4% at the Global and Foodservice units, respectively, while the metric rose 3% in the retail segment. The rise in price/mix across these segments were supported by improved mix and pricing actions. In fact, improved price/mix and volumes drove gross profit growth during the quarter. Consistency of such trends is likely to boost the company’s growth further.

Lamb Weston has been benefiting from LTO innovation, which plays a key role in the company’s long-term prospects. Incidentally, LTOs helped drive growth and market share in fiscal 2018 and 2019. More specifically, LTOs are aiding volume growth in the company’s Global segment. In fact, management is positive about further prospects from new LTOs.

Apart from this, Lamb Weston is expected to continue benefiting from its acquisitions, joint ventures and capacity expansion efforts. To this end, the company completed the acquisition of joint venture interests in Lamb Weston BSW sometime around mid-fiscal 2019. This contributed to the bottom line in fiscal second quarter. Among other moves, the company acquired Australia-based companies — Ready Meals and Marvel Packers — in 2019 and 2018, respectively. These buyouts have bolstered Lamb Weston’s market share in Australia.

Additionally, the buyouts of Marvel Packers and Ready Meals supported the company’s volume growth during fiscal second quarter. In recent developments, the company announced a joint venture with Sociedad Comercial del Plata in Argentina. Lamb Weston expects to benefit from greater revenue prospects in Argentina through this deal. Speaking on capacity expansion endeavors, the company completed the expansion of a facility located at Hermiston, OR on Jun 18, 2019. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries.

We believe that the aforementioned upsides are likely to help Lamb Weston maintain its solid position in investors’ good books.

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Helen of Troy Limited HELE, which sports a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 9.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Procter & Gamble Company PG, which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.5%.

e.l.f. Beauty Inc ELF, which carries a Zacks Rank #2, has a long-term earnings growth rate of 3.8%.

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