Q2 2025 Lamb Weston Holdings Inc Earnings Call

Thomson Reuters StreetEvents12-20

Participants Dexter Congbalay; Investor Relations; Lamb Weston Holdings Inc Thomas Werner; President, Chief Executive Officer, Director; Lamb Weston Holdings Inc Bernadette Madarieta; Chief Financial ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2492464593?lang=en_US&edition=fundamental","thumbnail":"","is_english":true,"pubTime":"2024-12-20 14:12","share_image_url":"https://static.laohu8.com/5f26f4a48f9cb3e29be4d71d3ba8c038","id":"2492464593","market":"us","top_or_hot":-1,"title":"Q2 2025 Lamb Weston Holdings Inc Earnings Call","media":"Thomson Reuters StreetEvents","content":"<div>\n<p>Participants\nDexter Congbalay; Investor Relations; Lamb Weston Holdings Inc\nThomas Werner; President, Chief Executive Officer, Director; Lamb Weston Holdings Inc\nBernadette Madarieta; Chief Financial ...</p>\n\n<a href=\"https://finance.yahoo.com/news/q2-2025-lamb-weston-holdings-061220681.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Q2 2025 Lamb Weston Holdings Inc Earnings Call</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nQ2 2025 Lamb Weston Holdings Inc Earnings Call\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-12-20 14:12 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/q2-2025-lamb-weston-holdings-061220681.html><strong>Thomson Reuters StreetEvents</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Participants\nDexter Congbalay; Investor Relations; Lamb Weston Holdings Inc\nThomas Werner; President, Chief Executive Officer, Director; Lamb Weston Holdings Inc\nBernadette Madarieta; Chief Financial ...</p>\n\n<a href=\"https://finance.yahoo.com/news/q2-2025-lamb-weston-holdings-061220681.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LW","symbol_name":"Lamb Weston Holdings, Inc.","start_time":0,"source_url":"https://finance.yahoo.com/news/q2-2025-lamb-weston-holdings-061220681.html","article_id":"2492464593","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2492464593","pubTimestamp":1734675140,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Dexter Congbalay; Investor Relations; Lamb Weston Holdings Inc. Thomas Werner; President, Chief Executive Officer, Director; Lamb Weston Holdings Inc. Bernadette Madarieta; Chief Financial Officer; Lamb Weston Holdings Inc. Good day and welcome to the Lamb Weston second quarter fiscal year 2025 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dexter Congbalay. Please go ahead.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"LW":"Lamb Weston Holdings, Inc."},"translate_title":"2025年第二季度Lamb Weston Holdings Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LW":0.9},"content_text":"Participants\nDexter Congbalay; Investor Relations; Lamb Weston Holdings Inc\nThomas Werner; President, Chief Executive Officer, Director; Lamb Weston Holdings Inc\nBernadette Madarieta; Chief Financial Officer; Lamb Weston Holdings Inc\nAndrew Lazar; Analyst; Barclays\nThomas Palmer; Analyst; Citi\nKenneth Goldman; Analyst; J.P. Morgan\nRobert Moskow; Analyst; TD Cowen\nRobert Dickerson; Analyst; Jefferies\nAlexia Howard; Analyst; Bernstein Research\nStephen Powers; Analyst; Deutsche Bank\nMax Gumport; Analyst; BNP Paribas\nMatthew Smith; Analyst; Stifel\nMarc Torrente; Analyst; Wells Fargo Securities\nCarla Casella; Analyst; J.P. Morgan\nPresentation\nOperator\n Good day and welcome to the Lamb Weston second quarter fiscal year 2025 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Dexter Congbalay. Please go ahead.\nDexter Congbalay\n Good morning and thank you for joining us at the Lamb Weston second quarter of 2025 earnings call. Earlier today, we issued our earnings press release and posted our slide that will be used for today's call. You can both on our website at lambweston.com.Please note that during our remarks, we'll make some forward-looking statements about the company's expected performance that are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements.Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix of our presentation.With me today are Tom Werner, our President and Chief Executive Officer; and Bernadette Madarieta, our Chief Financial Officer.Let me now turn the call over the Tom.\nThomas Werner\n Thank you, Dexter. Good morning and thank you for joining our call today. Let me start with the leadership change we announced earlier today. As you have likely seen, I will be stepping down as CEO, and Mike Smith, our current COO, will become Lamb Weston's next President and CEO beginning January 3, 2025.The Board and I believe now is the right time to transition to allow a new leader to guide Lamb Weston into its next chapter of growth. And I could be more thrilled to hand over the reins to Mike. His appointment represents the culmination of a thoughtful years' long succession planning process by the Board, and we are confident he is the right leader to guide Lamb Weston forward.Over the course of a 17-year career at Lamb Weston, Mike has developed a deep understanding of all critical aspects of our business and operational opportunities and [durable] growth across multiple areas of the company. I've had the pleasure of working closely with Mike and have witness firsthand his value-based leadership style and steadfast focus on people as well as his thorough understanding of the business.I'm confident that with Mike at the helm, Lamb Weston will drive profit and deliver value for our shareholders.Now turning to our results. Our second-quarter performance was below our expectations and not what we aim to achieve at Lamb Weston. Slide 4 provides a snapshot of the key themes that we'll be discussing with you today.We expect the challenging operating environment will persist in the near term as weak restaurant traffic trends and additional capacity expansions announced by our competitors since our Investor Day last year add to the current imbalance in global industry supply and demand, especially outside North America.In this new reality, we're evaluating opportunities beyond our initial restructuring plan to adjust our operations, including reducing manufacturing and supply chain costs and operating expenses. In addition, we're evaluating opportunities to drive topline by improving sales execution while also expanding our total addressable mobile market by leveraging proprietary technologies to serve nontraditional [freight] customers.As we discussed on our last quarter's earnings call, we expect to significantly reduce our capital spending next year as we shift away from growth capital to focus on base, modernization, and environmental capital. We expect these steps to increase our free cash flow, which would provide more flexibility to step up capital returns to our shareholders. We'll address each of these points during this call.Let me now turn it over to Bernadette to discuss details of our second-quarter results.\nBernadette Madarieta\n Thanks, Tom, and good morning, everyone. Starting on slide 5, you can see that net sales declined 8% compared to the year-ago quarter. Volume declined 6%, primarily driven by declining restaurant traffic in the US in many of our key international markets. Customer share losses, net of gain, and the carryover impact of our [divisions] last year to exit certain lower price and lower margin business in EMEA to strategically manage customer and product mix.While the effects of these three factors were largely in line with our expectation, the declines in sales and volume were more than what we anticipated for the quarter as we experienced incremental customer share losses in both business segments due to an increasingly competitive environment.Price mix declined 2% as compared to the prior-year quarter, which was just below our target for the period. Our pricing actions in North America were in line with our expectation. However, pricing in our international markets with more competitive. Channel and product mix was also in line with our expectations, but unfavorable versus the prior-year quarter, reflecting customer share losses exceeding customer gain.For North America segment specifically, sales declined 8% versus the prior-year quarter. Volume declined 5% and included the carryover impact of smaller and regional customer share losses and food away from home channels in the prior year and share losses in certain chain restaurant accounts.The majority of the decline, however, was due to the drop in restaurant traffic in the US. According to restaurant industry data providers, US restaurant traffic in the second quarter declined about 2% versus the prior year, although trends improved modestly versus our fiscal first quarter as QSR did continue to step up promotional activity.Traffic at QSR chains specializing in hamburgers in the second quarter declined about 1.5% versus the year-ago period. We continue to be encouraged by the improving trend in traffic and the steady (inaudible) rate. But as a reminder, many of these promotional meal deals have consumers trading down from a medium serving side to a small French fry serving side.As a result, while we benefit from improving traffic trend, the effect of the tradedown in serving sizes act as a partial and with some customers, a significant headwind to our volumes. Price mix in North America declined 3%, reflecting the planned investments that we made to retain and attract volume as well as unfavorable channel and product mix.For our international segment, sales declined 6% versus the prior-year quarter. Volume declined 6%, driven by several factors. First, restaurant traffic declined or softened sequentially in many of our key international markets. While restaurant traffic in the UK, our largest market in Europe was flat, traffic declined in Germany, France, and Spain.In Japan, QSR traffic grew versus the prior year, but decelerated versus our fiscal first quarter. Traffic growth in China remains soft. Second, we experienced incremental customer share losses resulting from a more intense competitive environment, most notably in the Middle East and certain markets in Asia Pacific. And third, we continued to realize the carryover effect of exiting certain lower price than lower margin business in EMEA. This was the last quarter that this will serve as a headwind.Price mix was flat versus the prior-year quarter, as incremental pricing actions to compete in key international markets offset the benefit of inflation driving pricing actions in India. Moving on from sale. On slide 6, you can see that adjusted EBITDA saw $95 million versus the prior-year quarter to $282 million. The decrease is largely attributable to a $135 million decline in adjusted gross profit. That was due primarily to four factors.First, price mix declined due to the planned pricing actions to retain customers and attract incremental volume. Second, higher manufacturing costs per pound, which reflects input cost inflation and inefficiencies associated with lower production and lower factory and [potato] utilization rate. Third, we incurred incremental production costs related to unplanned facility downtime and additional startup costs associated with our new capacity expansion.And finally, while not impacting EBITDA, we incurred $16 million of higher depreciation expense that's largely related to our capacity expansion in China and Idaho that were completed last fiscal year.Adjusted SG&A declined $12 million to $165 million. We reduced adjusted SG&A despite an incremental $7 million of non-cash amortization related to our new ERP system that went live in the third quarter of fiscal 2024. Continued execution of our expense reduction initiatives, including those associated with our restructuring plan, drove most of the improvement with the remainder largely due to lower performance-based compensation and benefit accrual.For North America specifically, adjusted EBITDA declined $55 million to $267 million, driven by a combination of unfavorable price mix, lower sales volumes, higher manufacturing cost per pound and incremental production costs. For our international segment, adjusted EBITDA declined $53 million to $47 million. Higher manufacturing cost per pound and incremental production costs drove the decline and the increasingly competitive environment in each region affected our ability to use price to fully offset inflation.Moving to our liquidity position and cash flow on slide 7. We ended the second quarter with about $80 million of cash and $1.2 billion available under our revolving credit facility. Our net debt was $4 billion, which puts our leverage ratio at 3.4 times on a trailing 12-month basis.In the first half of the year, we generated nearly $430 million of cash from operations, which is down about $25 million versus the prior year due to lower earnings, which were partially offset by favorable changes in working capital. Capital expenditures for the first half of the year, net of proceeds from blue chip swap transactions in Argentina were $486 million as we completed our expansion in the Netherlands during the second quarter and continued construction of our Argentina facility.We expect our capital spending during the second half of the year to significantly decline as we continue to target total annual capital expenditures of $750 million in fiscal 2025.During the quarter, we returned about $52 million to shareholders in the form of cash dividends. We did not repurchase any shares under our share repurchase authorization during the second quarter.I'll now turn it back over to Tom who will cover the next few slides. Tom?\nThomas Werner\n Thanks, Bernadette. At our Investor Day more than a year ago, we provided our view of the global frozen potato industry, including our estimates of future capacity additions as well as demand growth. Much has changed since then, so we wanted to provide you with our updated view.As shown on slide 8, prior to COVID, frozen potato demand in the US and our key international markets was growing above historical rates, resulting in Lamb Weston in the industry at large operating above full capacity. While COVID affected demand for a relatively short period, we saw evidence of frozen potato demand quickly rebounding to pre-COVID levels and historical growth rates.As a result, we strategically plan to expand capacity so we would be well positioned to serve our customers and capture our share of growing global demand. So starting in early 2021 and knowing that it typically takes two to three years to plan, construct, and qualify a new facility, we were one of the first processors to announce major capacity expansions and modernization of our existing production lines.This included projects in China, Idaho, the Netherlands, and Argentina. By the time of our Investor Day in October 2023, as you can see on the chart, some competitors have also announced capacity expansion projects. Since then, legacy competitors as well as some relatively new market entrants, have announced plans to construct more than 3.5 billion pounds of additional capacity between 2024 and 2027.This primarily includes expansions in Europe, China, and Brazil, but also in relatively new frozen potato processing regions such as India and the Middle East. While competitors' expansion announcements are always expected, we did not foresee the timing and aggregate scale of these additional expansions.As you can see on slide 9, including these additional announcements, we expect the industry in total may add up to 8.6 billion pounds of incremental production capacity over the next four calendar years. Given the near-term operating environment, we don't know whether all capacity expansions that have been announced will move forward and be operational by the end of calendar 2028.That said, if all these announced capacity additions are completed and on time and if there are no further capacity reductions, other than our strategic closure of Connell, Washington facility, we estimate total industry capacity may be more than 44 billion pounds by the end of 2028. That's an additional 10 billion pounds of capacity being added between 2023 in 2028, which is 4 billion pounds more than what was added in the previous five years.This has implications for industry capacity utilization. In 2024, we estimate capacity utilization is around 90%, which itself is down from the high 90s during the past couple of years due to the slowdown in global demand and the addition of nearly 3 billion pounds of incremental supply by (inaudible) less than our peers.Over the next few years, we expect capacity utilization may be in the mid to high 80s. Accordingly, and again, assuming all the announced expansion projects are completed or not significantly delayed, we expect the operating environment will remain challenged through the medium term, even if demand returns to historical rates as incremental capacity expansions add to the current imbalance and global industry supply and demand, especially outside North America.As you see on slide 10, we have again been an early mover to implement actions to combat this challenging environment. Nearly three months ago, we announced a restructuring plan to address the imbalance and improve our cost structure. This included reducing headcount, permanently closing our processing facility, and temporarily curtailing production lines and schedules. We remain on track to deliver on the $55 million of cost savings associated with this plan in fiscal year 2025 and annualized cost savings of $85 million in fiscal 2026.In addition, as I noted earlier, we're continuing to evaluate and execute opportunities to address our supply chain operations and support functions to effectively manage through this challenging environment, protect our profitability, and improve the free cash flow.We brought on a new Chief Supply Chain Officer about four months ago, and we're encouraged to see the opportunity you see in the team identified to reduce our manufacturing and supply chain costs. In the back half of the year, we'll have more to say about these initiatives to improve performance and profitability.Let me now turn over the call to Bernadette to discuss our updated outlook.\nBernadette Madarieta\n Thanks, Tom. While we anticipated a challenging environment for the balance of fiscal 2025 during our last earnings call, our performance so far has fallen short of expectations. As a result, we're reducing our financial targets for the year to reflect our performance in the second quarter as well as the increasingly competitive environment that Tom just described.As you can see on slide 11, we are reducing our net sales target range to $6.35 billion to $6.45 billion from our previous range of $6.6 billion to $6.8 billion. Using the midpoint of the new sales range implies a sales decline of 1% versus fiscal 2024. We're also reducing our adjusted EBITDA target range to $1.17 billion to $1.21 billion from our previous estimate of around $1.38 billion.Let me walk you through the key changes. On slide 12, you can see that about one-fourth of the reduction in our annual sales target reflects the shortfall versus expectations during the second quarter. The remainder reflects the combination of factors that affect the second half of the year.In North America, we expect incremental sales volume pressure due to the impact of unexpected loss of a chain restaurant customer, partially offset by the benefit of some new customer wins and the greater-than-forecasted impact from the downsizing in serving size related to promotional meals of our key customers.Our forecast for price mix in North America is down modestly from our previous estimate due to less favorable mix than we previously anticipated. Our forecast specifically for price is essentially unchanged as the pricing environment, while competitive, remains largely in line with our initial expectations.In our international segment, we expect volume to be below our previous forecast, primarily reflecting incremental customer share losses resulting from a more intense competitive environment as well as softer restaurant traffic in key international markets. In addition, we expect incremental pricing pressure in each of our region, but for different reasons.In Asia Pacific and Latin America, we're experiencing an increasingly competitive environment as demand growth slows and as additional supply from Europe and newer entrants in India, China, and the Middle East gain share. In EMEA, we're moderating some of the inflation-driven pricing actions that we implemented earlier this year to counter the initial surge in the market price of potatoes.In short, we expect the 1% decline in total Lamb Weston net sales versus the prior year will be driven by low- to mid-single-digit decline in price mix, partially offset by a low-single-digit increase in volume growth.With respect to adjusted EBITDA on slide 13, you can see that nearly one-third of the $190 million reduction in our annual adjusted EBITDA target reflects the shortfall in our performance in the second quarter versus expectations. Most of the remaining reduction in our EBITDA forecast is due to the impact of a more competitive environment in our key international markets, which is affecting volume and our ability to pass along input cost inflation.It's also due to the reductions in volume and less favorable mix in North America that I described earlier. In addition, relative to our previous forecast, we expect to increase manufacturing costs due to inefficiencies from lower asset and potato utilization. With respect to SG&A, we're maintaining our current range of $680 million to $690 million, but will likely be towards the top end of the range.As you can see on slide 14, based on our updated annual financial forecast, for the second half of the year, we expect to deliver sales of $3.1 billion to $3.2 billion, implying growth of 1% to 4% as compared with the prior-year period.We expect higher volume in both international and North America will drive overall sales growth. We forecast that our international segment will contribute the majority of the overall volume increase, primarily reflecting the benefit of incremental volume from recent change and customer contract wins across each of our geographic region, net of region share losses, [lapping] the impact of cancelled shipments associated with last year's ERP transition as well as the impact of the voluntary [product] withdrawal that affected our results in the fourth quarter of fiscal 2024.We expect North America volume growth to also reflect the benefit of (inaudible) cancelled shipments associated with last year's ERP transition. Continued progress in regaining share of regional and small customers loss in the prior year and incremental volume from recent chain customer contract wins net of share losses. We expect overall price mix will be down in the second half of the year.In North America, we're forecasting price mix will decline as pricing actions more than offset benefits of improved product and channel mix. As I previously noted, our price investments are consistent with our prior expectation. In international, we're forecasting overall price mix will also decline due to pricing actions in response to competitive dynamics in key international guests.Moving to earnings. In the second half, we expect to deliver $600 million to $640 million of adjusted EBITDA, which is in line with what we delivered in the prior period. Overall, we expect the benefit from incremental volume growth in both international and North America will drive EBITDA growth that will be largely offset by planned investments in price in North America, incremental price actions in key international markets, and the impact of input cost inflation and increased manufacturing costs due to inefficiencies from lower asset and potatoes utilization, which we are actively working to address.Now turning to our thoughts on capital expenditures on slide 15. As I previously noted, we're continuing to target total capital expenditures of approximately $750 million for fiscal 2025. We spent about $485 million during the first half of the year as we completed our expansion in the Netherlands and continued construction of our Argentina facility.Spending in the second half of the year, we'll focus on maintenance, modernization, and the continued construction of our Argentina facility, which is on track to be completed in mid-calendar 2025. For 2026, we're continuing to target total capital expenditures of approximately $515 million. We expect about $400 million will be for base, maintenance capital, and modernization effort, which is in line with our annual depreciation and amortization expense. The other $150 million will be for environmental capital projects that largely focused on wastewater treatment at our manufacturing facilities.As we highlighted last quarter, we expect to spend about $500 million in total over the next five years to comply with increasingly strict government regulations and permit limitations. For at least a few years beyond 2026, given our expectation for lower industry capacity utilization, we do not expect to direct any significant investments to growth capital. We'll focus our spending on base and modernization capital, which together is generally up to 5% of sales, plus an additional $75 million or so each year for environmental projects.As a result, fiscal 2026 should be a positive inflection point for our free cash flow. Note that the annual amounts that I just described exclude any capital we expect to deploy when we restart the next phase of our ERP implementation.Turning to our thoughts on capital return to shareholders on slide 16. Today, we announced a $250 million increase to our share repurchase authorization. With this increase, we have approximately $560 million remaining under our authorization.As has been our practice, we'll continue to use a disciplined approach to repurchasing shares, but the increased authorization combined with the increase in expected free cash flow provides us with the flexibility to opportunistically buy back shares under the program.With respect to dividends, we declared a $0.01 increase in our quarterly dividend to $0.37 per share. This is consistent with our history of increasing our dividend each year since becoming a public company more than eight years ago. Our target dividend payout ratio remains 25% to 35% of earnings per share. While we're above that range today, that's a result of temporarily depressed earnings.Let me now turn the call back over to Tom for some closing comments.\nThomas Werner\n Thanks, Bernadette. So let me just summarize today by saying we expect the operating environment in the near term will remain challenging as additional capacity expansions are announced during a period of ongoing pressure on demand. We are proactively adapting to this dynamic environment by strategically adjusting our footprint, reducing capital expenditures, managing our cost structure, and improving cash flow.At the same time, we remain committed to returning capital to our shareholders through opportunistic share repurchases and steady increases in our dividend while continuing to maintain and modernize our production assets.Overall, we remain well positioned with the unique strength and scale that Lamb Weston system provides navigated top industry wide operating environment. We're taking actions to adapt our operations to weather these transitory challenges and make lasting improvements to our operations. And we'll continue to leverage our solid fundamentals and balance sheet to continue to deliver value to our shareholders.Before taking questions, I just want to end with saying again that servicing as Lamb Weston's President and Chief Executive Officer has been a privilege and an honor and I'm proud of what the entire Lamb Weston team has accomplished during these last eight years.With Mike and his leadership team at the helm, Lamb Weston's future is in great hands. Thank you for joining us this morning. Now, let me turn it back over to Dexter.\nDexter Congbalay\n Thanks, Tom. Before opening up the call for questions, I just want to note that Mike and Bernadette will be on the road with investors in January. We'll provide details for those meeting shortly after the start of the new year.With that, we're now ready to take your questions.\nQuestion and Answer Session\nOperator\n (Operator Instructions) Andrew Lazar, Barclays.\nAndrew Lazar\n Great. Thanks very much. Tom, I guess, even assuming a 3% annual demand growth over time, and obviously that's a lot more than what we currently see. As you talked about capacity utilization by 2028, we'll only get back to around 90%. And that's certainly below where it's been historically in more the mid to high 90s.I guess in light of this, what do you now view as Lamb Weston's sort of structural or normalized EBITDA margin? And is it lower, or maybe roughly, how much lower is it than what you might have previously thought? And then I've got a follow-up.\nThomas Werner\n Yes, Andrew. I think based on our re-guide here today and going forward, assuming all that capacity comes online and there's no other industry adjustments to the footprint, we believe the go forward is in the range of (technical difficulty) on an EBITDA basis, 19% to 20%.\nBernadette Madarieta\n Yeah, and then Andrew, we'll expand margins by pricing to offset inflation over the longer term. But as Tom said, in the short- to medium-term environment, we're expecting 19% to 20% EBITDA margins.\nAndrew Lazar\n Thanks for that. And Tom, in light of the industry dynamic and some of the incremental capacity and such, why do you think other players have not yet made sort of similar decisions to curtail production or perhaps closed or shut or older, less efficient facilities, given all the new capacity that's coming on stream as you have?Typically, from an industry that's been rational, that obviously seems to be sort of breaking down now quite materially. Thank you.\nThomas Werner\n Yes, Andrew, I think as Lamb Weston, we're managing our business based on the environment that we're operating in. And I'm certain that the rest of the industry is evaluating the dynamics right now and it remains to be seen. But I would anticipate there may be some actions from our competitors, but it remains to be seen based on the environment.\nBernadette Madarieta\n Yes, and Andrew, for the long term, we expect it's going to be a generally balanced based on the confidence and continued category growth, positive French fry attachment rate. But this is just a short term to medium term that we're going to have to work through this, and we'll continue to evaluate any additional opportunities to reduce costs and make sure we profitably manage the business as we move forward in this difficult environment.\nAndrew Lazar\n Thank you.\nOperator\n Peter Galbo, Bank of America.\n Hey, good morning. Thank you for the question. Tom, I actually wanted to spend some time on the international business because I think there's a lot of moving parts there that maybe are not fully appreciated. So maybe we can start with Europe. I mean, I think you called out some incremental pressure. It seems like you're expecting more.I'm not sure how much of that is tied to the fact that you were expecting maybe a tighter potato crop this year that ended up coming in better and so competitors feel the ability to kind of price discount a bit more on. So maybe if you can start with that on Europe. And then as it relates to Asia, calling out the incremental pressure and I think the pressure that you're seeing now, how do you think about that with already existing -- in light of the capacity that's coming?So why would it not necessarily get worse? In some of those markets, as this slide kind of outlines there's quite a bit of capacity that's expected to come online. So I know there's a lot there, but maybe if you could address again Europe and then the Asian markets kind of separately would be helpful.\nThomas Werner\n Yes. So Europe, initially, the crop was projected to be below average. They recovered through the growing season. So you had some initial high-cost oven potatoes the industry procured, and then the crop came down. So with that and the competitiveness of that market, it's been difficult to give the inflation pass-through in terms of to the customer. So that's really driving the pressure on the European market.The other part of your question in terms of Asia, I would say that one of the -- we're getting some traction. But as you recall, when we had our ERP challenges, we protected a lot of the North American customers and we had some impact on our international, specifically in Asia customers. And so while the team's doing a great job winning back some of that business, it's just a little bit more competitive than we anticipated and we'll be going forward.\nBernadette Madarieta\n And Tom, the only thing I'd add to that in the Asian market, with the increased capacity that's come online there, it becomes more of an export market than it ever has been and we'll continue to look for that as opportunity to move sales profitably as well.\n Okay. Thanks for that. And then just on the back of Andrew's question around EBITDA margins, if I can take it up to the gross margin level, there's been obviously quite a bit of deleverage as a result of, I think, idling the capacity. Bernadette, I think you called out some other factors that hopefully we can go through.But I guess the question is, if the deleverage -- is it more than you expected or are there just other manufacturing elements that have come in that again, this gross margin now we run out and at a significantly lower level? Thanks very much.\nThomas Werner\n Yes. We've had some production manufacturing challenges early this fiscal year in terms of efficiencies and plants running, throughput, and hitting production schedules. So that's been really disappointing. We've got a new Chief Supply Chain Officer who is focused on that going forward. And we have a number of different things identified and we are seeing improvements. But as we continue to focus on production improvements, that's going to take some time to get us back to normal operating efficiency levels.\nBernadette Madarieta\n Yes. And then just a reminder, that relates to the back half margins. Seasonally, we'll always see gross margins in the third quarter be a little bit higher than in the fourth quarter. Not only will it be affected by seasonality, but we'll have the absence of some of those things that affected us in the first half of the year related to the product withdrawal and some of the inventory write-offs that we had previously talked about.\nOperator\n Tom Palmer, Citi.\nThomas Palmer\n Morning. Thanks for the question. I wanted to clarify on the customer losses that were not expected. To what extent was pricing the determinant of these losses? I know there was mention in Asia of some ERP challenges, so I'm just trying to understand like in customer service, which part of the consideration here with some of those lack of wins that were expected?\nBernadette Madarieta\n Yes, as it relates to customer losses, every year we go into the negotiation and it's a very competitive environment. And some of that's going to be related to price. There wasn't necessarily any ERP or other industry service factors that all. We continue to service our customers. But it's a competitive environment, more competitive than we originally thought it was going to be as we entered into the second quarter.\nThomas Palmer\n Understood. Thank you. I did see the expanded buyback program. How aggressive, I guess, are you willing to be as you watch the shares, maybe, that (inaudible)?\nBernadette Madarieta\n Yes. So as we move forward and I mentioned the back half of the year, we're going to have more free cash flow because most of our capital investments were made in the first half of the year. As we have more free cash flow, we're going to opportunistically be in the market and buy back shares. And we're excited to have the increased authorization that we announced today as well, the additional $250 million as we move forward.We'll leave it at that. But again, we'll have that additional free cash flow as we focus more on maintenance and base, capital, and modernization efforts moving forward.\nThomas Palmer\n Thank you.\nOperator\n Ken Goldman, J.P. Morgan.\nKenneth Goldman\n Hi, the [activist] reiterated his opinion this morning that in addition to management changes, Lamb requires significant Board change or should be sold, just to quote them. I know you don't -- have every Board member's intention, but Tom, you're on the Board, you may have some insight here.I'm just curious as to your belief at this time that there will be meaningful Board changes that the Board is open to Lamb being sold? And if you can't comment, do you at least know if the company plans on issuing a formal response to the activist's letter?\nThomas Werner\n Ken, we're here today to talk about earnings. Our outlook, we'll just go on to business and more importantly, the transition about Mike running the company going forward. So I'll leave it at that. But that's what we're here to talk about today.\nKenneth Goldman\n Okay. Following up, how do you see in terms of guidance, I know there's a lot of moving pieces in the back half, certainly some easier comparisons. Just as we think about underlying volume trends rate, excluding changes to customers, are you expecting any kind of improvement sequentially in consumer demand for your products? Again, just on a like-for-like basis, if that's even possible to kind of parse out?\nBernadette Madarieta\n Yes, we are expecting incremental volume from customer wins that I think even previously we've been talking about the fact that we start seeing the benefit of those in the third quarter. (inaudible) we are seeing the impact of that. So a lot of positive momentum there, particularly in the international segment.\nKenneth Goldman\n Thank you.\nOperator\n Robert Moskow, TD Cowen.\nRobert Moskow\n Hi, thanks. Similar to Ken's question, are there any assumptions in your back half about regaining customers that you lost from the ERP disruption? Do you have to get new business wins in the back half starting from today in order to achieve those numbers?\nBernadette Madarieta\n The numbers that we've included in the back half of the year include all of our line of sight to customer wins that we have in place. So no, there isn't a large amount in there that is unknown business wins.\nRobert Moskow\n Okay. And a quick follow-up. You lost another chain customer in North America. Is there any concerns about reputation risk from the missteps in calendar 2024? What are your customers saying about their willingness to trust Lamb Weston as a supplier?\nThomas Werner\n Yes. So in terms of really, across the Board from a customer standpoint, certainly, we've had to address and repair some of those relationships. But by and large, I think we're -- through most of the challenging discussions we've had, it takes time. But I feel great about where we are with our large customers. And even some of the foodservice channel business, it's taken us more time than what we had previously anticipated to regain some of those accounts that were impacted by some of the challenges we had a year ago.\nRobert Moskow\n Okay, thank you.\nOperator\n Rob Dickerson, Jefferies.\nRobert Dickerson\n Great. Thanks so much. Tom, maybe just kind of a basic question for you. On the [Connell] capacity, you don't see to Connell online over the next three, four years. What do you think drove those players to decide all that capacity there, just given the operating backdrop globally, number one.And then number two, we've always (inaudible) or spoken about certainly the fragmented market obviously in the United States with a ton of opportunity to [defragment] globally. But now, kind of what we're hearing as well, that fragmentation at [QS] actually is causing some of this issue because you have some of these smaller players that are medium and (inaudible).Let's add this new capacity because maybe we can get some of the margin, too, we can get some that profit, too. It just seems clearly like this is the first time this much has been added outside the US and doesn't sound like we're talking about kind of the core three other players that we normally discuss when we talk about in the US. Thanks.\nThomas Werner\n Yes, Rob. So when you step back and you go look at between 2017 and 2022, there's about 3 billion pounds that were added in the industry and all that capacity got utilized based on the demand growth. And as I said in my remarks, two, three years ago, as we saw demand recovering at historical rates, we made a strategic decision to expand our footprint.Subsequent to that, obviously, there's been some additional capacity expansions in Europe, India, and China as well as North America that I think the industry was seeing the same category growth rates. The environment we're dealing with today is -- we're seeing restaurant slowdown in a lot of markets. And so I think the industry has seen the same thing in terms of category growth and it's slowed down.We view this as a transitory situation. And I think as I said earlier, some of the capacity announcements, we'll see if they actually come to fruition based on the environment or they're delayed. So I think it's a combination of the industry's kind of view on this -- the category is the same and the category has changed, and that's the big driver.\nRobert Dickerson\n Okay. Fair enough. And then Bernadette, I think you got a little nitpicky here, but there is the one slide, right, when you kind of map out that CapEx. We talked about the CapEx kind of starting to come off, obviously [growth] CapEx from 2026.And I think the total numbers, so for CapEx is $550 million, which is similar to what you've spoken to in this past, but there is that little circle, right? It says 68%, which I'm assuming, as you look at the chart, there are 68% of sales implied. Now clearl,y you've guided to '25, right? We know in CapEx, we can kind of reverse engineer to get to what you think your implied sales would be in '26 to get to 68%?It seems a little high, let's say, on the sales side. Just to clarify, like you're very comfortable with the $550 million? I guess we'll see if it winds up being 68% of sales, put it that way.\nBernadette Madarieta\n Absolutely. I'm very comfortable with the $550 million.Okay, great. All right, I'll pass it on. Thanks a lot.\nOperator\n Alexia Howard, Bernstein.\nAlexia Howard\n Good morning, everyone. So [flowing] tends to be on the demand side of the equation, you talked a lot about capacity and competitors this morning. What does your research is telling you about the reasons for the weak consumer demand? And I imagine the reasons might be quite different between US and Europe.And specifically, are you seeing any impact at the moment about on the uptake of GLP-1 weight loss drugs you keep on hearing US on? I'm just wondering how that informs your expectations about improvement in demand going forward? And then I have a follow-up. Thank you.\nBernadette Madarieta\n Sure. As it relates to US demand, most of the decline in demand versus the prior year relate to there being the fifth consecutive quarter where consumers are continuing to face inflation, and we've seen declines in restaurant traffic. So that's the primary reason that we're seeing that as it affects our business than more value promotion meals.And when those value promotion meals drive the increased traffic, we see consumers trading down and there's been a bigger impact on that and we've adjusted then are our forecast accordingly. And if we turn to the international market, overall, the restaurant traffic trends there have slowed sequentially as well as compared with the first quarter. They're continuing to adjust to many price inflation as well.We have not, though, seen a large impact from GLP-1 based on everything that we've seen to date. We'll continue to monitor it. But from a demand perspective, we're not expecting anything significant in the long-term.\nThomas Werner\n Hi Alexia, just one thing I also stated our (inaudible) the fry attachment rates have been consistent and steady. So it's -- when people are going to restaurants, they're buying fries at the same time, like they usually did. They might be now buying a smaller fry, but at least they're still buying the fries when they go to the restaurants at the same rate.\nAlexia Howard\n Great. Thank you for that. And then as a follow-up, you mentioned (technical difficulty) some opportunities with nontraditional customers. Can I ask you about how large those markets are and exactly what they are that you're going after?\nThomas Werner\n Yes. So Alexia, I'm not going to get into specifics in terms of volume potential and specific customer opportunities. But the way to think about it is things that we've done in the past with some of our customers that traditionally didn't offer fries and/or tater tots, that's some of the things we're looking at with some potentially new customer entrance into the frozen potato category. And I'll just leave it at that.\nAlexia Howard\n Thank you. I'll pass it on.\nOperator\n Steve Powers, Deutsche Bank.\nStephen Powers\n Great. Thanks. I wanted to go back to capacity utilization from a slightly different perspective. When you talk about the low 90s utilization today, I mean, how does Lamb's utilization compared to that [emission] benchmark? I guess what I'm trying to get at is how much of the industry [slack] is in your business?\nThomas Werner\n Yes. So this footprint adjustments we made several months ago brought us back up into the low 90 range, and that's the reason we did it. We feel comfortable about where our utilization is today. And as I stated earlier, we've had some challenges across our footprint with some unplanned downtime and other maintenance issues that we're addressing.We're seeing more efficient utilization in the past period and it's improving. But overall, the reasons we made the changes we made was to get our utilization rate kind of in the low 90s and we'll improve on that.\nStephen Powers\n Okay. And then I wanted to just dig back into the business that's been slower to win back than you would hope. I guess, to boil it down, I guess the question is really what's the sales pitch to those accounts? And is there any levers you can lean on besides price to the extent of the competition? You're now servicing those accounts -- is doing a good job.\nThomas Werner\n Some of it is price. There's no question about it. But we also -- as we're talking to those customers, it's talking about different products, different innovation potentially, some -- if they're doing like value-added menu offering. So there's some different discussions we're having going forward and winning some of that back. It's just taking longer than what we anticipated.\nBernadette Madarieta\n Yes, we're focused on consistency, quality, customer service, and then if there's anything we can bring to the table in terms of LTO, those are the conversations that we're having in addition to price in the competitive environment.\nStephen Powers\n Got it. Thank you very much.\nOperator\n Max Gumport, BNP Paribas.\nMax Gumport\n Thanks for the question. I wanted to turn back to the comment on the 19% to 20% EBITDA margin being an estimate for the go-forward level in the current supply demand environment. So that does look to be roughly in line with how you're guiding towards the second-half EBITDA margin. But you've also observed to date that your earnings in '25 are temporarily depressed.Clearly, there's price investments going on. There's manufacturing inefficiencies. There's other pressures that could abate. And then you'll also be getting benefits from all the cost-cutting initiatives that you're just starting to get out there.So I'm trying to get more clarity on what you see as your normalized adjusted EBITDA margin and why it would not be higher than the 19% to 20% that you're expecting for the second half of this fiscal year? Thanks very much.\nBernadette Madarieta\n Yes, thanks for the question. In the short to medium term, we expect the pressures to continue. Certainly, we are doing everything we can from a cost view to make sure that we can continue to increase the profitability and we'll continue to do that over time. But right now in the short to medium term, with the pressures that we've been seeing, we're going to go ahead and guide to 19% to 20% range for EBITDA margins.And we'll come back as we're able to sell more in terms of what those improvements and other things look to be as again, our new Chief Supply Chain Officer has been here four months but we've got a lot of positive things we're seeing just this period. But I want to wait until we've got a more robust plan to come back with on that.\nMax Gumport\n Okay. I'll leave it there. Thank you.\nOperator\n Matt Smith, Stifel.\nMatthew Smith\n Hi, good morning. Tom, you talked about initiatives to improve the impact of the lower utilization for manufacturing. Can you just provide a little more color about how you address that both in the near term and over time? And along with that, you temporarily suspended production and some lines. Has the impact of that suspension -- has it been in line with your expectations? Or is it contributed to more of some of the production inefficiencies we've seen?\nThomas Werner\n No, it's been largely in line with our expectations. Production challenges we've had were unplanned and the run rates, for a number of different reasons, more up to where we normally expect them to be. And again, I'll reiterate, they've improved and they're improving. And we've had some startup issues with the (inaudible) plant and a little bit of American falls that we didn't anticipate, but those are improving.We got the teams working on, and we expect that to continue to improve and get to normalized levels here in the near term.\nMatthew Smith\n Thank you, Tom. And one clarification. You mentioned your utilization rate or Lamb's utilization rate improving from here. Is that a reflection of the improving traffic trends? And I'll leave it there and pass it on. Thank you.\nThomas Werner\n So it's more a reflection of the power processing of potatoes in the plant and the utilization rate and just being more efficient with how we're running the lines. And assuming that we've got a lot of the issues here in the last three, four months addressed going forward. We're expecting to be running more normalized here for the back half of the year.\nOperator\n Marc Torrente, Wells Fargo Securities.\nMarc Torrente\n Hey, good morning, and thank you for taking my questions. Just a little more on the utilization, just asking a different way. So you believe you're currently in line with industry rates in the low 90s and most of the forward incremental capacity you laid out through '28 is from competitors. So would you expect to be ahead of industry capacity utilization on the medium term?\nThomas Werner\n No, I think we're generally in line. I know there's some competitors that from what we understand, are running higher. But I think overall, we're at kind of industry standard right now.\nMarc Torrente\n Okay. And then for finished goods inventory, elevated coming out of Q1, inventories being higher in Q2, any color on how much progress you had working through that during the quarter, where you are currently versus normalized levels? And when would you expect production at [line] model is (inaudible)?\nBernadette Madarieta\n As it relates to second and third quarter, our raw material inventory and our finished goods inventory are usually at their peak because we've just harvested potatoes in September and October. So you usually see that peak and then we'll continue to work those inventories down as we move forward throughout the balance of the year.\nMarc Torrente\n Okay, thanks.\nOperator\n Carla Casella, J.P. Morgan.\nCarla Casella\n Hi. Just one question on leverage. I know your CapEx is coming down next year. But looking at the balance and CapEx coming down, increased buyback, increased dividend, any change to your leverage target as you [get] there? I know you're having conversations with the agencies.\nBernadette Madarieta\n Yeah, no change to our leverage target. We continue to target to 3.5 times leverage ratio.\nCarla Casella\n Okay, great. Thanks.\nOperator\n With no additional questions in queue, I'd like to turn the call back over to Mr. Congbalay for any additional or closing remarks.\nDexter Congbalay\n Thanks, everyone, for joining the call today. If you have any follow-up questions, please e-mail me and we could schedule a time to do so. Again, thank you and have a happy holiday day, everyone.\nOperator\n Thank you. That will conclude today's call. We appreciate your participation.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2492464593"}