Q4 2025 Lamb Weston Holdings Inc Earnings Call
Please stand by. We're about to begin.
Good day and welcome to the lamb. Weston fourth quarter and fiscal year 2025 earnings call.
Today's conference is being recorded.
Speaker Change: At this time, I would like to turn the conference over to Debbie Hancock, vice president of investor relations. Please go ahead.
Good morning and thank you for joining us for lamb Weston's, fourth quarter and full year fiscal 2025 earnings call. I'm Debbie Hancock lamb Weston's, vice president of investor relations. Earlier today we issued our press release and posted slides that we will use for our discussion today. You can find both on our website lambweston
Speaker Change: please note that during our remarks, we will be making forward looking statements about the companies, expect expected performance that are based on our current expectations,
Speaker Change: 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.
Speaker Change: 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 Gap results. You can find the gaap to non-gaap reconciliations in our earnings release and the appendix to our presentation.
Speaker Change: Joining me today are Mike Smith, our president and CEO and bernardette Madrid at our Chief Financial Officer. Let me now turn the call over to Mike. Thank you, Debbie, good morning and thank you for joining us today. I first want to thank our lamb Weston team around the globe for their hard work and strong execution.
Speaker Change: Recently added significant new and relevant experience to the board with 6. New members, including a new chairman Bradley, Alfred, as well as Lawrence cursus, Paul, mace, Timothy mclavish, Ruth Kimmel shoe, and Scott ohsfeldt
Speaker Change: Management. And the new board have a high sense of urgency and are aligned on capitalizing on the many opportunities we collectively see to drive results in our business.
Speaker Change: Today's results evidence, the momentum we continue to build with customers and the visibility we have in our business as we work to rebuild credibility with investors.
Speaker Change: We are focused on controlling what we can control and are taking advantage of opportunities to drive results and improve execution. Through a cost-savings program, we announced today along with our customer Centric, focused to win strategy for long-term success.
Speaker Change: Successful execution, of these plans will help Drive improved performance, including free cash flow and long-term returns.
To drive further alignment along with sales and adjusted ibida, free cash flow and Returns on Capital have been added to our compensation plans for fiscal 2026.
This alignment continues at the board level, which for 2026, the board has unanimously elected to receive their compensation in equity in the company.
Speaker Change: We believe these cumulative, actions are reading the organization to further support customers and accelerate our performance. When demand returns to growth
Speaker Change: Turning to business results. Lamb lesson ended the year with momentum and customer wins and retention, delivering results ahead of our updated expectations for fiscal 2025.
Speaker Change: The team is executing at a high level and our long-standing commitment to Quality Service and Innovation is driving success with customers globally.
Speaker Change: We have a strong fourth quarter, that came in above, our expectations, volume was up with winds across channels and geographies and net sales grew
Speaker Change: Price mixed declines reflecting our supportive customers with price and trade as we manage the competitive environment and soft restaurant traffic.
Speaker Change: We're also seeing the benefits of our cost Savings in our cost structure.
Adjusted ibida in the quarter and we made significant progress in improving working capital.
Speaker Change: For the full year, our success in the second half enabled us to end the year with volume up as discussed on earlier calls our full year. Profit was impacted by actions to support customers in a competitive environment, higher costs from production curtailment and higher inventories during the year as well as inflationary pressures.
We offset some of this impact by delivering slightly above our cost savings. Target with 59 million of savings for the year.
Speaker Change: Since January, when I took on the role of CEO, I've worked closely with the board and management team to drive change with urgency and better position our business for success.
Speaker Change: Over the past several months and with the support of outside resources, we undertook an end to end assessment of our operations. We developed a strategic plan to drive targeted, decision-making, and actions. And we are now executing on a plan to unlock near and long-term value.
Speaker Change: This plan, which we call Focus to win. Includes zero-based budgeting, assessing our non-core assets and augmenting. Our commercial go to market.
We are already making progress. You can see in our better than expected results announced today. But we know that the work and the real opportunities are ahead of us.
Speaker Change: We are operating in an industry with rapidly changing Dynamics and a global consumer environment that remains uncertain, it requires a new approach, a focus to win.
Global demand for French fries remains strong, but the market dynamics are evolving in important ways growth in food, delivery, expanding, qsr, Concepts, and air fryers changing how we cook at home, are creating an opportunity that demands Innovation and new approaches.
Speaker Change: Geographic, growth is greatest in Emerging Markets, where margin profiles are lower, but also where qsr formats are expanding.
Speaker Change: and following Market shortages during Co the long-term attractiveness of our industry has created the potential for future Supply demand imbalance, most notably outside the US
Speaker Change: As previously, discussed while new capacity has been announced globally. We do not expect at all to be built. We have already begun to see industry, consolidation and decisions to postpone or cancel capacity additions.
Speaker Change: We believe these postponements and cancellations could continue as the industry has been rational over time.
Speaker Change: Importantly, not all new capacities, created equal Geographic, exposure capabilities. Rev revital liability of new of raw materials sourcing and quality. Determine the markets and channels impacted by new capacity.
Speaker Change: Strategic Focus for lamb Weston.
Speaker Change: We believe the work, we performed on the market, confirmed our right to win in our key geographies segments and product categories.
Speaker Change: We are operating in some of the lowest cost potato growing regions and we are investing in capabilities aligned to growth opportunities and to our customers needs to win and grow profitably over time.
Let's talk about our Focus to win strategy.
To differentiate lamb Weston. In today's market, we are defining where to play through a strategic framework that focuses our resources and efforts on the most attractive growth opportunities across markets channels and product segments.
Speaker Change: How we expect to win is targeted. Strengthen our customer Partnerships execute with excellence and set the pace for innovation.
Speaker Change: We are creating a repeatable cycle with 4 elements that drive growth and profitability for lamb Weston.
Speaker Change: First, we are focusing Investments on priority, Global markets and segments.
Speaker Change: Second, we are strengthening customer Partnerships.
Speaker Change: Third, we are achieving executional excellence. And finally, we are setting the pace for innovation.
Speaker Change: We'll talk more about these shortly, but at the core we will do what our team does better than anyone else. Be our customers number 1 partner, a world-class potato company and an industry-leading innovator.
Speaker Change: Our Focus will be on geographies channels and products where we can both differentiate and lead. We've built our business in part by being something for everyone. But going forward, we will continue to partner with excellence in our core markets, we will invest to grow in markets channels and product categories with more attractive profit opportunities, where customers value? Our full product and service offerings,
Speaker Change: We will focus our resources on markets and segments where we have the greatest advantage and re-evaluate non-core assets and markets.
Speaker Change: We will close the capability gaps in our organization, and we will Target Premium market segments, where Innovation is a differentiator.
Speaker Change: We must transform how we operate. It is how we will win.
Speaker Change: First strengthen customer Partnerships, lamb Weston remains a partner of choice for our customers. Our third-party research confirms that our value relationships and service are best-in-class. Our opportunity is to expand what we've done with our largest customers to our priority customer targets and geographies enhancing our joint business, planning activities and capabilities.
Speaker Change: Second achieve executional excellence.
Speaker Change: To be a partner of choice for our customers and to successfully and profitably operate in an increasingly competitive market. Everything we do, we must do with Excellence across all functions of the company.
Speaker Change: For example, in supply chain, we are focused on operating an advantage, Global footprint aligned to our growth plan with a streamlined distribution Network and revamped continuous Improvement team with a focus on plant productivity, this includes simplifying, and standardizing operations across locations.
Speaker Change: Driving OE Improvement via land West and Manufacturing operating culture and embedding a zero loss mindset, in raw, potato and materials usage.
Speaker Change: Finally to differentiate in a competitive marketplace, with changing customer preferences. We must continue lamb Weston's long track record of being an innovation leader.
Speaker Change: Our Innovation efforts have delivered incremental improvements that directly enhance the customer and consumer experience. Looking ahead. We're expanding our Ambitions to include breakthrough Innovations such as lamb Weston fast, freeze, that allow operators and non-traditional fry channels to provide customers with fast and crispy. Fry offerings. These customers unlock new sources of value and channels that don't traditionally serve fries.
Speaker Change: This next chapter broadens, our Innovation efforts Beyond product level and into areas such as process technology.
Finally, we have created Global Innovation hubs to orchestrate disruptive innovation platforms. We believe this will create a Global Network of insights and Innovation Specialists centered on 2 Innovation, hubs North America and International.
In concert with these plans. And as part of our Focus to win strategy, today we announced cost savings that are designed to better align our organization with the environment improve efficiency and focus on our biggest opportunities. We have identified at least 250 million dollars of annualized run rate savings that we expect to achieve by the end of fiscal 2028 that Bernadette will talk about more in a moment.
Speaker Change: We believe these actions will lower our cost base and help ensure we remain competitive. While reallocating resources on a more targeted basis to invest for growth,
Bernadette: As I've discussed customer and consumer preferences for our products. Remain high though, execution. In this period of macro, uncertainty will be Paramount to the future success of the company.
Bernadette: Our business. This includes streamlining, our organization implementing zero-based budgeting and strategically investing to improve productivity and strengthen our manufacturing Network.
Bernadette: But we also should not lose sight of the bigger picture, which is that lamb Weston will be poised to deliver for our customers with an improved cross structure and operations. When our customers see increased demand in their business,
Bernadette: We don't know exactly when that will be but when it does happen, we have confidence that it it will and we will be well positioned to win when it does. I'll now turn it over to bernardette to review the fourth quarter and fiscal year performance and walk through our Outlet.
Bernardette Madrid: Thank you, Mike and good morning, everyone.
Bernardette Madrid: I want to start by thanking our teams for their hard work. In fiscal 25 as we navigated a challenging year.
Halfway through the year, we made important changes to adapt to the evolving environment and put our business on a path back to growth.
Bernardette Madrid: Our fourth quarter results, reflect the progress, we made throughout the year to address the dynamic and changing environment.
Bernardette Madrid: We delivered volume growth in the fourth quarter and for the full year, discipline cost management and a focus on cash flow with significant working, Capital Improvements and lower Capital expenditures.
Bernardette Madrid: Let's begin with our fourth quarter results, on slide 17.
Bernardette Madrid: Net sales, increased 4% compared with the prior year.
Bernardette Madrid: Volume increased 8% primarily driven by contract wins across each of our channels and geographic regions.
Bernardette Madrid: And lapping in approximate 22 million negative impact in the prior period from a previously announced voluntary product withdrawal.
Bernardette Madrid: These gains were partially offset by Soft Global Restaurant traffic Trends, which were down low single digits in our largest markets of the US and UK.
Bernardette Madrid: Despite lower traffic Trends. There are some positive Trends in the consumption data.
Bernardette Madrid: In the US, french fry, attachment rates, continue to remain approximately 2 points higher than pre-pandemic levels.
Bernardette Madrid: The French fry category grew 1% in the quarter and qsr Fry serving sizes. Also increased 1%.
Bernardette Madrid: Price mixed declined 4% in the quarter, compared to the prior year, reflecting efforts to support customers on price and trade, in an increasingly competitive environment. In both our North America and international segments.
Looking at our segments, North America, net sales declined, 1% compared with the prior year primarily due to lower net selling prices.
Bernardette Madrid: Price mix in our North America, segment declined, 5% due to pricing actions to support our customers which was only partially offset by favorable Channel and product mix.
Bernardette Madrid: The favorable mix was attributable to growth in higher margin, Regional small and Retail customers.
Bernardette Madrid: Volume increased 4%, primarily related to Regional small and Retail customer wins.
These volume gains were partially offset by Soft restaurant traffic.
Bernardette Madrid: In the US qsr traffic, improved from February's levels, but compared with the prior year was down 1% in the quarter and the fiscal year.
Traffic at qsr chains. Specializing in hamburgers, was down 2% in the quarter and 3% for the year.
Bernardette Madrid: It's important to note that this is on top of decline in the prior year.
Bernardette Madrid: Restaurant traffic on a 2-year stack is down mid. Single digits with qsr hamburger focused restaurants down high single digits over the 2 year. Period.
For our International segment. Sales grew 15% versus the prior year quarter with little impact from foreign exchange.
Bernardette Madrid: Despite restaurant traffic being down, 3% in the UK, our largest International Market and relatively flat. In key International markets, the international segments, volume increased 16% driven primarily by recent customer contract wins and to a lesser extent lapping the voluntary product withdrawal in the prior year.
Bernardette Madrid: Price mix declined. 1% reflecting pricing actions to support customers in key International markets in response to the continued competitive environment.
Bernardette Madrid: Moving on from sales as expected, adjusted gross, profit declined, compared with the prior year quarter.
Bernardette Madrid: Due primarily to First pricing actions, to support our customers.
Bernardette Madrid: Second. Deliberate choices we made to temporarily curtail some production resulting in approximately 19 million dollars of higher Factory, burden absorption.
Bernardette Madrid: Cost per pound.
Bernardette Madrid: Third low single digit input cost inflation, including the benefit of lower raw potato prices.
Bernardette Madrid: and finally, while not impacting, ibida, higher depreciation, expense from our recent capacity expansions
Bernardette Madrid: These actions were partially offset by increased sales volume and lapping the impact of the voluntary product withdrawal in the prior year.
Bernardette Madrid: Adjusted sgna declined, 16 million on Lower advertising and promotional spend.
Bernardette Madrid: Lapping of higher Erp, transition expenses in the prior year, as well as the benefits of our cost-saving initiatives.
Bernardette Madrid: All of this led to adjusted Eva dot of 285 million which is essentially flat or up to million dollars versus the prior year.
Bernardette Madrid: Lower adjusted sgna, offset, lower adjusted, gross profit and Equity method, earnings after adjustments for depreciation and amortization.
Bernardette Madrid: Turning to segment, ibid do performance on slide 19.
Bernardette Madrid: Adjusted evida on our North America segment declined 7%, or 19 million versus the. Prior year quarter to 258 million, primarily related to pricing actions, to support our customers and 17 million of incremental. Fixed Factory burden absorption.
This was only partially offset by lapping in 19 million charge for the voluntary product withdrawal in the prior year and lower sgna expenses.
Bernardette Madrid: For our International segment, adjusted Eva dot increased 22 million to 63 million.
Bernardette Madrid: Higher net sales, lower manufacturing cost per pound, including lapping, a 21 million charge related to the voluntary product withdrawal in the prior year. And lower sgna offset the impact of a 1% decrease in price Max.
Bernardette Madrid: Moving to our liquidity position and cash flows on slide 20.
Bernardette Madrid: We ended the year with approximately 1.24 billion dollars of liquidity. Comprised of approximately 1.17 billion available under our revolving credit facility and 71 million of cash and cash equivalents
Bernardette Madrid: Our net debt was 4.1 billion dollars in our adjusted, ibaa to net debt. Leverage ratio was 3.3 times on a trailing 12-month basis.
Bernardette Madrid: In fiscal 25, we generated 860 million of cash from operations.
Bernardette Madrid: This is up 70 million versus the prior year. Due primarily to 300 and 49 million of favorable changes in working capital which was primarily attributable to lower inventories which reduced 8 days and a favorable change in a crude liabilities.
Bernardette Madrid: We expect to continue to drive inventory improvements as part of our Focus to win plan.
Bernardette Madrid: This plan includes approximately 60 million dollars of cash flow from inventory, Improvement in fiscal 26 and 27 or 120 million in total by the end of fiscal 27.
Bernardette Madrid: Turning the slide 21.
Bernardette Madrid: Capital expenditures for fiscal 2025, net of proceeds, from bluechip SWAP transactions in Argentina, or 651 million.
Bernardette Madrid: Down 323 million with our expansion projects nearing completion.
Bernardette Madrid: We ended the year below our initial 750 million Target due to continued Capital discipline cost savings initiatives and the timing of projects and cash outlays.
Bernardette Madrid: For fiscal 26, our Capital spending is expected to be approximately 500 million with approximately 400 million in maintenance and modernization and 100 million for environmental projects, which are mostly for wastewater treatment.
Bernardette Madrid: On slide, 22. You can see that we remain committed to returning cash to shareholders.
Bernardette Madrid: For the year, we returned 489 million.
In the fourth quarter, we repurchased 1 million of shares and 282 million in the year leaving us with 358 million available under the plan.
Bernardette Madrid: We also returned 207 million in cash dividends during the year.
Bernardette Madrid: We plan to continue to follow a disciplined Capital, allocation approach, anchored around investment in the business, its capabilities and areas. We are, we are working to competitively differentiate lamb Weston to execute our business strategy while maintaining a strong balance sheet and opportunistically returning Capital to shareholders.
Bernardette Madrid: Starting with the potato crop on slide 23.
Bernardette Madrid: We've started harvesting and processing the early, potato varieties in North America and initial indications are that. This portion of the new crop is slightly above historical averages
Bernardette Madrid: at this time, the potato crops in the Columbia, Basin, Idaho, Alberta, and the Midwest that will be harvested in the fall appear to be largely within historical ranges as growing conditions in these regions have been favorable.
Bernardette Madrid: As a reminder in North America, we've agreed to Aid single-digit decrease in the Aggregate and contract prices for the 2025 potato crops.
Bernardette Madrid: Because we ended the year with lower inventories, we expect that we will begin realizing the benefits of lower cost, potatoes harvested out of field in the second quarter of fiscal 26.
Bernardette Madrid: This is earlier than last year and in line with historical seasonal timing.
In Europe, favorable dry and warm growing conditions in the industry's main growing regions of the Netherlands. Belgium, northern France and Germany are expected to result in an average crop.
Bernardette Madrid: We currently expect our potato costs in Europe to be flat to slightly lower than the previous years fixed price contracts.
Bernardette Madrid: We will provide more details on the crops in both North America and Europe. When we report our second quarter results,
Bernardette Madrid: turning to slide 24 and our fiscal 2026 Outlook.
Bernardette Madrid: The Outlook includes the contribution of a 53rd week with the additional week following in the fourth quarter.
Bernardette Madrid: In fiscal 26, we expect our category to continue to be in high demand, with customers and consumers, prioritizing french fries as a menu and an at-home item.
However, our guidance assumes continued pressure on consumers from macroeconomic and geopolitical factors.
Bernardette Madrid: Our Outlook assumes, no improvement in Global Restaurant. Traffic from fiscal 25 levels.
Bernardette Madrid: But it does plan for customer momentum. That began in the second half of fiscal. 25 to continue.
Bernardette Madrid: it also does not include additional impacts of evolving trade policy, including changes in tariffs and retaliatory countermeasures
Bernardette Madrid: With this is a backdrop. We expect revenue for fiscal 26 and the range of 6.35 billion to 6.55 billion dollars, which is a 2% decline to 2% growth on a constant currency basis.
Bernardette Madrid: The carryover pricing actions. We made in fiscal 25 to support. Our customers will have a negative impact on net sales in the first half of the year.
Bernardette Madrid: Based on the timing of contract renewals most of the fiscal 26, pricing actions will impact the second half of the year and they are expected to have a lesser impact than those made in fiscal 25.
Bernardette Madrid: In total, we expect sales to be stronger in the second half of the fiscal year which will benefit from the additional week.
Bernardette Madrid: Turning to our adjusted. Evaa outlook on slide 25.
Bernardette Madrid: Beginning in fiscal 26. We are implementing changes in our reporting of adjusted sgna and adjusted ibida to fully exclude. Non-cash share-based compensation expense.
Bernardette Madrid: In fiscal 25, stock based compensation, expense was $40 million.
Bernardette Madrid: After this call, we will publish a schedule recasting prior periods to reflect this new methodology on our investor website.
Bernardette Madrid: With this change, we expect adjusted, evida for fiscal 2026 of 1 billion to 1.2 billion.
Bernardette Madrid: We expect adjusted gross profit to be down negatively impacted by the carryover pricing and further efforts to support customers with price and trade in fiscal 26.
Bernardette Madrid: Low single digit inflation, including the benefit of lower raw potato costs.
Bernardette Madrid: In higher fixed Factory burden and startup costs. In our International segment, primarily related to our new plant in Argentina, which is expected to begin producing sellable products in August
Bernardette Madrid: Before the benefits of our cost Savings Program, we expect adjusted sgna will increase compared with the prior year.
Bernardette Madrid: Due to an incremental 40 million headwind related to normalizing incentive compensation expenses. After a couple of years of lower than planned incentive,
Bernardette Madrid: and approximately 10 million dollars of incremental Investments, including, for example, Innovation, and advertising and promotion expenses to support our long-term strategic plan.
Bernardette Madrid: From the cost savings program. That we announced today.
Bernardette Madrid: We expect to deliver approximately 200 million of the full savings, Target by the end of fiscal 27 with about half on a run rate basis.
Bernardette Madrid: Fiscal 26.
Bernardette Madrid: In fiscal 26 we expect approximately 2/3 of the hundred million dollars of savings to be realized in the second half of the year.
Bernardette Madrid: About 2/3, will benefit adjusted gross profit and 1/3 will benefit adjusted sgna this year.
Bernardette Madrid: Over the program's life. However, we anticipate approximately 75% of the benefit in Gross profits, and 25% in sgna.
Bernardette Madrid: to deliver the savings, we expect to recognize approximately 70 to 100 million dollars of cash pre-tax charges, most of which are expected to be paid in fiscal 26,
Bernardette Madrid: Keep in mind that these savings are on top of the remaining approximately, 25 million of incremental benefits that we expect to deliver under the restructuring plan. We announced in fiscal 25.
Bernardette Madrid: And finally, adjusted ibida will benefit from the contribution of an additional week of sales and earnings.
We are targeting a full year. Effective tax rate of approximately, 26% for fiscal 26, excluding the impact of comparability items.
Bernardette Madrid: This tax rate is forecast to be in the high 20s, in the first half of the year and low 20s in the second half of the year.
Bernardette Madrid: Reflecting the expected timing of discrete items, most notably in the fourth quarter.
We do not expect the recently enacted US federal tax legislation to have a material impact on our fiscal. 26 tax rate.
In summary. Lamb Weston is operating from a strong financial foundation. And we believe the steps we announced today. Will enable us to improve our competitiveness and financial position through cost savings establishing clear strategic priorities and working Capital Improvements.
We believe these expected savings together with lower levels of capital expenditures and working Capital Improvements will help Drive improved profitability and cash flow over the long term.
Bernardette Madrid: I'll now turn the call back over to Mike.
Mike Smith: Thank you, bernardette. I'm confident in the direction. We are taking lime Weston. And we are making important and significant changes to our business to compete more effectively in today's Marketplace.
Mike Smith: We have organizational alignment to capitalize on the tremendous opportunities in front of us.
Mike Smith: We will drive performance by focusing on the controllables.
But we do, so knowing that will provide an even bigger opportunity for us and our customers when restaurant traffic returns to growth, and we will be ready.
Mike Smith: With that, we're happy to take your questions.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad, please, make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again, press star 1 to ask a question.
Speaker Change: We will go first to Peter galba with Bank of America.
Speaker Change: Hey, good morning Mike in bernardette. Thanks for the questions.
Um, good morning, Mike. Maybe I just
Morning. I I, I wanted to start, um, on on the ibida. You know, margin Target for the year I think is around 17% at the midpoint, um, and that would kind of be the, I think the lowest, you know, it it's been since the company was, was spun public on on a standalone basis. So maybe you can just kind of help us understand if, if you think this is a, a floor, in terms of a margin percentage and and I know you guys probably care about dollars more than percentages. But you know what? The push and
Speaker Change: factors might be, um, over the next couple of years, that that could push that number either higher or lower from that, you know, new kind of 17 days,
Speaker Change: Items across all generations of french fries. It's 1 of the most profitable items on restaurant menu and menus, and the attachment rate, uh, remains high. And so, um, you know, uh, we we believe we're going to continue to invest in the business, uh, for the long term, and we're also making significant changes around our cost structure. And, you know, we've done a lot of work as we talked about in our prepared remarks over the last several months. Um, and it's showing us where we have some opportunities. And so we're addressing those and with the announced 250 million cost Savings Program over the next few years. And so I'll tell you, listen, we believe our strategy has us on a path to return to those margin levels, but we'll provide more details. Once we're further along with our uh focused wind strategy.
Speaker Change: Great, that that's helpful. And and maybe just as a follow-up, um, to, to both of you, you know, there was a lot of discussion around, um, the Improvement of working capital, both in the prepared remarks. Um, and, and in the press release this morning,
Speaker Change: I guess just you know, Mike there's a there's a lot of ways to to get there in terms of the working capital Improvement. And it it looks to be on the inventory side but but maybe just a little bit more detail on. You know what specifically you're planning to do around inventory levels. Um what that might look like in the supply chain? As as we contemplate, the go forward, thanks very much.
Speaker Change: Yeah, no, uh, great question around. Working capital. You know, when you think about our Focus to win, uh, strategy, a big part of its value creation and that's uh, across the entire, uh, pnl. When I look at the progress we made, uh, really in Q4, um, you know, we improved our inventories and a lot of that had to do with the stronger volumes, uh, that we saw coming through, uh, the pnl, you know, keep in mind for this coming fiscal year, uh, and the crop season we've, um, reduced our acres. And, you know, we had higher uh, inventories. And so we're making sure that we work through those inventories in the right ways. You know, I talked a little bit about um improving our capabilities, as an organization and 1 of those capabilities that we are um investing behind for the future is around planning and integrating integrated planning from, you know, the aside all the way through the to finish goods. And so uh, we're really confident in our in uh our ability to improve our working capital over the next couple years.
Speaker Change: Great. Thanks very much, guys.
Speaker Change: Thanks Peter. Thanks Peter.
Speaker Change: We'll go next to Scott Marks with Jeffries.
Scott Marks: Hey, good morning. Thanks so much for taking your questions. Um, first of all, I wanted to ask about International capacity, you made some comments, I believe that there's been some announced capacity International leads but that you don't necessarily expect those to get off the ground. So just wondering if 1 if I have that, correct and then 2 maybe what what gives you confidence that some of those projects won't be moving forward?
Speaker Change: Yeah, I appreciate the uh, question Scott. You know, I'm not going to speculate on on what the capacity will or or uh or won't happen. What will or won't be announced? But we do do believe that the industry has been pretty rational in the past as it relates to capacity. And through our competitive intelligence, we believe that there's roughly 1 to 1 and a half billion pounds that's been canceled or to delayed. Um, I'll also tell you, you know, the pace of new announcements has also slowed. And so, when we think about our business, we're really taking the steps to control what we can control and ensure that, you know, our production lines up, uh, with our demand and and, uh, the great thing about the position that we're in, as we see restaurant traffic return, and as our, uh, customers start to grow, we're well positioned with, uh, available capacity to take advantage of of those, uh, improved demand signals.
Scott Marks: Appreciate the answer, thanks for that. Um, and then secondly, just want to ask about kind of the the capex uh, guide for the year to year and maybe go forward how how we should be thinking about it. Um, I think in presentation you mentioned that about 3% of sales should be a kind of a maintenance, capex number. And obviously the god you gave came in a little bit below what uh what folks were looking for. So I'm just wondering if you can kind of share some thoughts around that and kind of put some takes and how we should think about that going forward. Thanks.
Scott Marks: You bet? So first, we are reducing the capital intensity as we shift away from our growth Investments to modernization. And maintenance, as you mentioned, uh, generally we would expect about 3% of sales for bass capital and 2% for modernization. And then, as I mentioned, there's about a 100 million we have now that's related to wastewater treatment. So, all in, um, you know, we expect that this $500, 500 million dollar. Uh, capex plan is really, uh, something that is going to support, uh, lamb Weston continuing to maintain its assets and the capabilities that we need to drive our strategy forward.
Best phone. Thanks so much.
Speaker Change: Once again, it was star 1. If you had a question, we will move next to Alexia Howard at Bernstein.
Alexia Howard: Good morning, everyone.
Alexia Howard: Morning. Alexia
Hi there. So, 2 quick things from me. Um, first of all, uh, can you talk about what? Um, went better than expected, this quarter and whether any of those Trends could persist into fiscal, 26.
Speaker Change: Yeah, you know the 1 that uh, you know, that comes to mind Alexia for Q4 is how we're engaging with our customers. You know, you've heard me talk a lot about the importance of driving customer, centricity through our organization and that starts at the top. And I've been personally, out meeting with several of our, our top customers and, and talking about, uh, where we have opportunities to improve and where we can, uh, help support them and their their growth into the future. And so we're continuing to do that, um, the other area, uh, obviously that we've talked about here is around our, um, focus to win, uh, strategy and and the cost Savings Program. And obviously, we've been doing a lot of analysis, over the last several months. But we've already started to, uh, focus on some of those areas to start implementing, uh, some of the opportunities, uh, that we see specifically around, uh, better execution on the business, as well as focusing on our Innovation moving forward. Yeah. And Alexia, the only other thing I'd mention is, uh, just the really strong volume growth across all of our channels and
All of our regions. I think as we mentioned you know North America volume was up 4% in international, volume up 16%. And as Mike mentioned that's a big reason we were able to also drive down our inventories at the end of the year.
Speaker Change: Very helpful can I can I follow up? Um with a question about um the burger uh Channel. Um I think you said on a 2-year stack um the traffic in there is still down I believe High single digits you mentioned. Um
Speaker Change: How much exposure do you have to that channel in North America? Because I, I'm trying to figure out if there's a risk, if glp-1 weight loss drugs, really step up next year, with the pill versions coming out, uh, could that, um, have a material impact or are there ways that you can insulate yourself from that kind of, uh, outcome next year. Thank you. And I'll pass it on, you know, Alexia yeah. Yeah, yeah. Good good question. You know, Alexa, um, you know, when you look at the qsr servings or or fry servings 85 or over 80% of of fried servings come from the qsr space.
Speaker Change: Specific to, to glp1, you know, we don't see a material impact on our business. Uh, right now, when you look at, you know, the retail frozen potato category data, uh, you know, seems to be in a, in a good spot. Also, when I look at fry menu importance, uh it remains above pre-pandemic level. So when consumers are going to restaurants, uh they're ordering fries at a higher level than they were, um, prior to the pandemic.
Speaker Change: You know, we continue to engage in Industry studies and we're evaluating the consumer, just like all the other companies out there on what the impact of GLT 1's might have. And we have our Innovation team aligned to, to make sure that we um, adjust and and change within each sort of consumer preferences, that may come our way.
Great, thank you very much. I'll pass it on.
Steve Powers: Call me next to Steve Powers with Deutsche Bank.
Great, good morning, thanks. Um, Mike. I I think, um, as part of your outlook, you mentioned that, um, it assumes, you know, continued positive customer momentum, um, that you've built, you know, in the back half of 25. I just wanted to a little bit more clarity there is that is that just the carryover of recent business wins or are you assuming um, you know, a degree of you know, incremental wins that may not have, yet been finalized, just trying to understand exactly what that commentary means.
Steve Powers: Yeah, it's it's uh, it's all Steve. I mean, uh, we've had a, a lot of strong volume as as, uh, burn it up mentioned, um, in Q4. Uh, but the teams are also out there, you know, pounding, the Pavements, and talking to our customers and making sure that they understand that lamb lessons here to support them for growth. You know, last call we talked about a new, um, uh, large, uh, qsr, uh, uh, chain, that's switching to a frozen fry. And, you know, that can that transition continues uh, to move forward and and we're continuing to um, you know, pick up
Steve Powers: Up new opportunities uh, as our teams out there. Um engaging with customers in a in a more profound way.
Steve Powers: Great. Um and then if I could
Speaker Change: Maybe to offer a little bit of commentary, just around, how you're um assessing the risks and opportunities associated with potential changes in the current status quo. And and what work you're you're doing just to position yourself against different differing scenarios um that may develop you know as recently as as quickly as the next few weeks. So just how you're how you're thinking about that. Thanks.
Speaker Change: Yeah no appreciate the question. As, you know, just from a business perspective, we're a global business. And so we're supplying most of our customers locally or regionally, as it relates to our cost structure, our biggest area, uh, where we will be impacted by tariffs is oil and some of our ingredients. Um, we continue to, uh, look at opportunities for us to look at different blends and other things to mitigate exposure, but in total, uh, if the August 1st, do come to fruition the exposure to our financial results and our Outlook is about 25 million dollars.
Speaker Change: Okay, very good. Perfect. Thanks for that, appreciate it.
We'll go next to Mark trenty with Wells, Fargo securities.
Mark trenty: Hey, good morning and thank you for the questions. Um first, just on your outlook for sales um expected uh flattish overall price. Mix is expected to be down. Implying volumes could be flat to up. Even how much is that of? That is driven by the 53rd week falling in Q4 and then with your carryover customer wins and your level of visibility into the year. Any more color on expected uh sales, Cadence through the year, thanks.
Mark trenty: Yeah, no, thank you for the question as we look at the first half and the back half of the Year, our sales are going to be much more pressured in the first half of the Year primarily due to the carryover pricing from fiscal 25. Um, from a volume perspective, the we've got the carryover volume momentum that was included in there. But most of the volume impact uh is going to be in the 53rd week in the back, half of the year. Um that's where you're going to see uh some of the increase in volume and to a lesser extent you will see impact of pricing in the back, half of the year with the fiscal 26, pricing actions that relate to the fall contract renewals
Mark trenty: Okay, appreciate that. And then, uh, bridging out the e, but a little more. The decrease, uh, seems primarily due to lower gross profit pre- cost savings, could you help with quantifying some of those larger buckets between pricing investment inflation? Fixed cost absorption? Any other color on, uh, front half versus back, half phasing on those costs and when could those costs start to stabilize versus being a headwind?
Speaker Change: Yeah so the way to look at this year um from a margin perspective is we're going to see more of a sequential increase from first to second quarter uh and then to third um last year if you recall there was a large increase in margins in the third quarter. And that was because we had a lot of raw inventories that we continued to process.
This year, we will get back to the more seasonal Trend where we will begin harvesting out of field and we'll see the impact of some of the lower pricing of potatoes, as well as the cost benefit of harvesting out of field beginning in the second quarter.
Speaker Change: So really the lowest, you know, margin impact from an adjusted gross profit perspective will be in the first quarter and then sequentially increasing. Um, and then the, the typical seasonal decline that we see in the fourth quarter,
Speaker Change: Does that that help explain a little bit about how we're expecting the year to to play out. Anything else I can cover?
Speaker Change: No, that that's helpful. Appreciate it.
Speaker Change: Great, you bet.
Speaker Change: We'll go next to Robert Moscow, with TD Cowen.
Speaker Change: But you know I think we're all wondering at what point does your pricing structure kind of stabilize and um I think you know that you know what's happening from competitors probably has a lot to do with it.
Speaker Change: So more specifically when you when you said that 1 to 1 and a half billion pounds of projects have been delayed, was any of that in North America as well. Thanks.
Speaker Change: Yeah, the answer the the last part of your question Rob, uh, that 1 to 1 and a half, uh, billion. None of that was in North America. Keep in mind, there are some projects that are still um being finalized. Um, those were decisions on those projects were made uh a couple years or so ago. So they're just in the in the final um stages but majority of the new capacity uh that is been announced and coming online is uh is overseas and international markets. You know, a large portion of that is in Europe. Um as well as some of the other developing uh markets that we talked about, I think the important thing to note is that not all capacity is created equal. And so as I talked about in the prepared remarks, you know, it depends on uh, you know, the quality of raw, it depends on the capabilities in those facilities on the types of opportunities. Uh, that that these um, manufacturers can can go after. And so, um, again like I said, you know, the pace of new announcements is definitely slowed uh, over the the last
Speaker Change: Order. Yeah, and the only other thing I'd add to that, um, is that our strategy is Mike talked about it, today really is positioning us to gain share and lean into those premium segments of the market. And to Mike's Point, not all capacity is created equal, so you'll see a lot from us in in that respect as it relates to carrying out our strategy as we move forward.
Speaker Change: Okay. Uh, thank you.
Speaker Change: We will go next to Carla cassella with JP Morgan.
Carla Cassella: Hi. Thank you for taking the question. Um, just wanted to ask you, your leverage Target. Is it still about 3 and a half to 4 times range? And do you see taking leverage up to that level or is that more just the level in case you see the right opportunity in terms of m&a?
Hi Carla. Thanks for the question. Yes, we do. Continue to Target a ratio of about 3 and a half times and, you know, we'll reduce debt as warranted to make sure we maintain this level.
Speaker Change: Okay. Yeah, we also
Speaker Change: Go ahead, Carl. I was just going to say the the other thing for us is we also are open and will entertain uh m&a or other. You know, joint venture Partnerships in the future.
Okay, that's great. I mean just I'm not I was just doing the follow-up actually on that note, um, are there you know, what are you seeing seeing in terms of opportunities? I know you had been looking to more International. Um um and then a uh and buying in some of the regions. Is there any more opportunity for those kind of easier? You know, businesses you already know type m&a, or anything more off the board you would look at
No you know work continue to focus on on the potato uh industry and we'll um continue to to look at m&a globally. As long as it's in the, the right markets, with the right capabilities uh that support our Focus to win uh, strategy. And so um, you know, we'll continue to keep our our options open and and like we said in the past we'll we'll look at m&a. We'll look at uh, joint venture Partnerships and and other ways to to grow our business around the globe.
Okay, great. Thanks for the time.
Speaker Change: We'll go next to Max gunport with BNP, parable.
Hey, thanks for the question. First with regards to your strategic framework and determining the the geographies that you want to focus on.
Speaker Change: Could you give a bit more color on on what your plan might be for the for geographies, where you don't believe you have a competitive advantage, or you don't see strong growth potential and specifically, how would you view Europe with regard to setting into this framework?
Speaker Change: Yeah, I appreciate the question. You know? Um,
I'm not going to give details around those geographies. Right now, obviously we've done a lot of work over the last uh, several months. And, um, for competitive Reasons, I'm not going to share the details of of what those might look like. But I know that as we get into those, uh, plans a little bit further on, uh, we'll update, uh, the investment community on those decisions as they move forward.
Speaker Change: Okay. And and then the decisions are removed non-cash, stock based compensation as an expense.
With regard to your adjusted metrics and it seems to me a bit like a step backwards as an accounting practice. So I was hoping to get
Speaker Change: The retaining employees. And I think,
Speaker Change: Given your going into a year when incentive comp is normalizing and the board is going to be receiving their typical cash retainer in shares to restricted stock. The timing feels a bit odd to me. So could you talk more about the the justification for this decision. Thank you.
Speaker Change: Yeah, I'll speak to that. So, you know, our annual incentive plan, which is normalizing. And and the Forty million dollar incremental costs that I referred to, that's a cash award, that certainly will be included in our ibida metrics. As we take a look at evaa, you know, some of the non-cash items that are affected with volatility on, in terms of whether or not performance is achieved or not. Um, those those are items that are driving volatility and change that. That really aren't, uh, something that we want to manage the business towards. And so we took this opportunity now to add that back, it's very common um, in Industry where we've seen this added back and, and we took that opportunity to do it is that is an item that we as a management team as we evaluate this business. Do generally, add back.
Okay, thanks very much.
Speaker Change: That will conclude our Q&A session. We will now turn the conference back to Debbie Hancock for any additional closing remarks.
Thank you, Jeff. And thank you everyone for joining us today. Uh, the replay of the call will be available on our website later this afternoon. Thank you.
Speaker Change: Thank you, ladies and gentlemen, that does conclude today's call. We thank you for your participation. You may disconnect at this time.