Lamb Weston (LW) posted mixed Fiscal Q1 2022 results characterized by a net sales increase and decline in earnings per share (EPS). The company has also updated its Fiscal 2022 outlook. LW shares fell 6.64% to close at $58.20 on October 7.
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Lamb Weston is a U.S. company that produces and distributes frozen potato products worldwide.
Fiscal Q1 sales were up 13% year-over-year to $984.2 million, driven by an 11% increase in volume as demand for frozen potatoes increased. Lamb Weston also benefited from charging customers more for product deliveries and a favorable product mix.
However, adjusted EBITDA fell 39% year-over-year to $123.4 million due to lower income from operations. Consequently, diluted EPS shrunk 67% year-over-year to $0.20. (See Top Smart Score Stocks on TipRanks)
According to CEO Tom Werner, Q1 results reflect the ongoing recovery in the frozen potato sector as demand bounces back to pre-pandemic levels in North America. However, the executive warned of higher costs going forward due to inflationary pressure, transportation costs, and supply chain disruptions. Gross profit margins are also expected to remain below pre-pandemic levels.
Lamb Weston expects Fiscal 2022 net sales growth to be in the low to mid-single digits. Sales growth in Q2 should be driven by higher volume amid growing demand for frozen potato products.
On the other hand, adjusted EBITDA for the remainder of Fiscal 2022 could remain pressured amid increasing inflation on key product inputs. Packaging and transportation challenges, as well as industry-wide operational challenges, could continue to pressure earnings.
Additionally, Lamb Weston’s strong balance sheet and ability to generate cash should allow it to expand production capacity and support long-term growth, including investments in the U.S. and China.
Recently Jefferies analyst, Robert Dickerson reiterated a Buy rating on the stock with an $80 price target, implying 37.46% upside potential to current levels.
Consensus among analysts is a Strong Buy based on 3 unanimous Buys, with an average Lamb Weston price target of $80 per share.
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