Lamb Weston Dips 4% On 3Q Earnings Miss, Sales Beat Expectations

Shares of Lamb Weston Holdings dipped 3.6% to close at $77.99 on April 7 after the food processing company reported lower-than-expected fiscal 3Q earnings, impacted by higher costs. Meanwhile, revenues outpaced analysts’ expectations.

Lamb Weston’s (LW) 3Q net sales declined 4% on a year-over-year basis to $896 million but topped analysts’ expectations of $816.45 million. Adjusted earnings decreased 41% to $0.45 per share and missed the Street estimates of $0.51 per share.

The company’s SG&A expenses grew 9.3% in the quarter, while interest expenses surged 16.3%. Sales volume dropped 6% as pandemic-driven restrictions resulted in lower demand. Notably, lower volume in global and foodservice segments was partially offset by higher volume in the retail segment.

Lamb Weston CEO Tom Werner said, “In the coming months, we believe the gradual improvement in frozen potato demand will continue to the extent governments further lift social restrictions, and as warmer weather provides more outside dining opportunities. The ongoing disruptive effects of COVID-19 on our supply chain will continue to pressure near-term costs, but should also lessen after vaccines become more widely available for our manufacturing teams and our supply chain partners.” (See Lamb Weston stock analysis on TipRanks)

“In addition, we remain optimistic that overall demand in the U.S. will steadily return to pre-pandemic levels around the end of calendar 2021, and that global category growth will resume at historical rates soon thereafter,” Werner added.

Following the 3Q results, Jefferies analyst Robert Dickerson increased the stock’s price target to $84 (7.7% upside potential) from $80 and reiterated a Hold rating.

“While the risk/reward seems tilted to the upside if margins (and EBITDA) can inflect quickly throughout FY’22,” Dickerson is “sitting this one out for now given near-term cost headwinds and valuation,” which he sees as “fair” based on the company’s history.

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating, based on 1 Buy and 1 Hold. The average analyst price target of $92 implies 18% upside potential to current levels. Shares have jumped 35% over the past year.

Lamb Weston scores an 8 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.