EPS of $0.88 decreased by 44.7% from previous year
Gross margin of 21.5%
Net income of 127.40M
""First, we permanently closed our Connell, Washington facility, which is one of our older, higher cost facilities. Closing this nearly 300 million pound capacity facility reduces our total capacity in North America by more than 5%."" - Tom Werner
Lamb Weston Holdings Inc (LW) QQ1 2025 Results Commentary: Volume-led pricing, restructuring to lift efficiency amid a soft restaurant backdrop
Executive Summary
Lamb Weston reported QQ1 2025 revenue of $1.654 billion, a 0.7% YoY decline and a modest QoQ increase, with a gross margin of 21.5% and adjusted EBITDA of $290 million (reported as $302.6 million EBITDA in the press release). The quarter benefited from volume and price mix that exceeded internal targets, but was pressured by higher manufacturing costs per pound, a larger-than-expected voluntary product withdrawal charge, and ongoing mix effects from channel shifts. Management signaled a clear plan to improve efficiency through a restructuring program, including closing the Connell, WA facility (reducing North American capacity by 5%+) and a 4% global headcount reduction. They expect total FY2025 savings of about $55 million (roughly two-thirds SG&A and one-third COGS) with annualized savings of roughly $85 million in FY2026, and capex guidance of approximately $750 million for FY2025 (down $100 million from prior plans). The company maintained a mid-term growth thesis anchored in International expansion, capacity modernization, and a path to normalized fry category growth as restaurant traffic stabilizes. The updated FY2025 net sales target remains $6.6-6.8 billion (constant currency), with EBITDA at the low end of $1.38-1.48 billion and adjusted EPS guidance of $4.15-4.35. The management team stresses that the anticipated benefits from the restructuring and new capacity, together with disciplined cost management, should support positive free cash flow even as near-term margin headwinds persist. Investors should monitor restaurant traffic trends, commodity input costs, ERP-related benefits, and the timing of volume normalization from new international customers hitting in Q3-Q4 2025.
Financial highlights for QQ1 2025 vs prior year and quarter:
- Revenue: $1.654B; YoY change: -0.7%; QoQ change: +2.6%
- Gross Profit: $356.0M; Gross Margin: 21.52% (vs target 22-23%); YoY gross profit change: -28.7%; QoQ: -8.2%
- Operating Income: $212.1M; Operating Margin: 12.82%
- EBITDA: $302.6M; EBITDA Margin: 18.29%
- Net Income: $127.4M; Net Margin: 7.70%
- Diluted EPS: $0.88; GAAP EPS: $0.89; Weighted Avg Shs Outstanding: 143.6M (basic)
- Cash flow: Net cash from operating activities $330.2M; Capex $325.9M; Free cash flow $4.3M
- Balance sheet: Total assets $7.513B; Total liabilities $5.678B; Total stockholders’ equity $1.837B
- Leverage: Net debt $3.941B; Total debt $4.062B; Leverage ratio ~3.0x
- Liquidity: Cash and cash equivalents $120.8M; Available liquidity under revolver ~$1.0B; 1Q cash flow was aided by working capital improvements
- Segment performance: North America sales down 3% YoY with volumes down 4%; International sales up 4% YoY with price mix +5%; North America EBITDA $276M (includes ~$21M withdrawal charge); International EBITDA $51M (with ~$18M withdrawal impact)
- Guidance markers: FY2025 net sales $6.6-6.8B; Adj. EBITDA $1.38-1.48B; Adj. SG&A $680-690M; Interest expense ~ $185M; Tax rate ~25%; Adj. Diluted EPS $4.15-4.35; FY2025 Capex ~ $750M (down $100M); 2026 capex targeting a notable reduction; 4% headcount reduction; $55M FY2025 savings with plan to escalate to ~$85M annually in 2026.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.65B
-0.67%
2.62%
Gross Profit
356.00M
-28.73%
-8.22%
Operating Income
212.10M
-34.40%
-0.19%
Net Income
127.40M
-45.74%
-1.77%
EPS
0.89
-44.72%
-1.11%
Key Financial Ratios
currentRatio
1.19
grossProfitMargin
21.5%
operatingProfitMargin
12.8%
netProfitMargin
7.7%
returnOnAssets
1.7%
returnOnEquity
6.94%
debtEquityRatio
2.21
operatingCashFlowPerShare
$2.3
freeCashFlowPerShare
$0.03
dividendPayoutRatio
40.6%
priceToBookRatio
4.87
priceEarningsRatio
17.54
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from management remarks and Q&A:
- Strategy and cost actions: Tom Werner outlined a restructuring plan to improve efficiency and cash flow, including permanently closing the Connell, WA facility (reducing North American capacity by more than 5%), temporarily curtailing production lines to shift volume to lower-cost assets, and a 4% headcount reduction across segments. Bernadette Madarieta highlighted the $55 million FY2025 savings target with two-thirds SG&A and one-third COGS impact, and an expected ~$85 million annualized savings in FY2026. Core rationale: tighten cost structure amid a challenging operating environment and preserve profitability while maintaining growth investments in strategic plants (Netherlands and Argentina). Quote: “First, we permanently closed our Connell, Washington facility... reduces our total capacity in North America by more than 5%.” (Tom Werner)
- Pricing and demand environment: Management noted that pricing activity was broadly in line with expectations, with volume and price mix driving sales above target, though manufacturing costs per pound rose. They anticipate some negative price mix later in the year as pricing investments continue. Quote: “pricing contracting season was in line with what we expected... we stabilized the environment going forward.” (Tom Werner) and “you will see greater pricing investment though during the balance of the year... and so we will see some negative price mix.” (Bernadette Madarieta)
- International momentum and capacity: The company cited stronger growth outside North America, including Asia Pacific and Latin America, aided by new plants online in coming quarters. Quote: “we are seeing some good wins, particularly in the Asia Pacific region... our upcoming plant that will be coming online in the spring of next year.” (Bernadette Madarieta)
- Potato crop and input costs: North American crops are “slightly above historical averages,” while European crops are expected to be in line with historical averages, with European costs rising due to fixed-price contracts; the company also outlined a potential $500 million five-year environmental capex program. Quote: “the crops in the Columbia Basin, Idaho, Alberta, and the Midwest are slightly above historical averages” and “we currently believe the European potato crop... will be in line with historical averages.” (Tom Werner/Bernadette Madarieta)
- Balance sheet and liquidity: The company highlighted net debt of about $3.9B and leverage around 3x, with cash at end of period around $121M and extra liquidity from a new $500M term loan used to repay existing debt; they anticipate working-capital improvements through restructuring. Quote: “our net debt was about $3.9 billion, which puts our leverage ratio at three times.” (Bernadette Madarieta)
- Outlook and margins: Management reaffirmed a focus on protecting profitability through cost savings and capex discipline, while noting near-term margin headwinds from fixed-cost deleveraging and product withdrawals. They expect the lower end of EBITDA and emphasized cash flow discipline. Quote: “we expect to record a $200 million to $250 million pre-tax charge associated with the restructuring” and “net sales range of $6.6-6.8 billion… EBITDA at the low end of $1.38-1.48 billion.” (Bernadette Madarieta, Tom Werner)
"First, we permanently closed our Connell, Washington facility, which is one of our older, higher cost facilities. Closing this nearly 300 million pound capacity facility reduces our total capacity in North America by more than 5%."
— Tom Werner
"We currently estimate that these actions will generate total savings of approximately $55 million in fiscal 2025, with about one-third benefiting cost of sales and two-thirds benefiting SG&A expenses."
— Bernadette Madarieta
Forward Guidance
Management guidance reflects a cautious but constructive path through a mid-cycle environment. Key points include:
- Net sales target for FY2025: $6.6–$6.8 billion on a constant-currency basis, implying growth of 2–5% driven by volume rather than pricing leverage.
- EBITDA: Target at the low end of $1.38–$1.48 billion, reflecting higher manufacturing costs per pound due to fixed-cost deleveraging from curtailed lines and less favorable product/mix, partially offset by cost savings from the restructuring.
- Cost structure and efficiencies: Approximately $55 million of savings in FY2025 from the restructuring (about one-third COGS, two-thirds SG&A) with annualized benefits of ~$85 million starting in FY2026. Cash costs associated with the plan are expected to be $200–$250 million pre-tax, about 80% cash and 20% non-cash.
- Capital expenditures: FY2025 capex now targeted at ~$750 million (down $100 million), with a shift away from ERP expansions toward completing strategic capacity projects in the Netherlands and Argentina. In 2026, capex is expected to decline toward a level aligned with depreciation and amortization, plus ~$150 million of environmental capex, and potential ERP phase restart costs.
- Margin trajectory and risk: Near-term gross margins are expected to be pressured by fixed-cost deleveraging and mix, with some improvements as lines are brought back online and volume recovers. Management sees potential improvement if restaurant traffic rebounds and new international volumes materialize in Q3–Q4 2025.
- Key risks to monitor: The pace of U.S. restaurant traffic recovery; the ultimate realization of cost savings and capex benefits; environmental capex spend and potential incentives; ERP deployments and related stabilization; input costs and potato crop dynamics; and sustained pricing discipline in a competitive environment.
Assessment: If the restructuring savings achieve the targeted $55M in 2025 and $85M in 2026, and if the new international volumes materialize as planned, the path to margin stabilization and free cash flow generation looks favorable, albeit contingent on a recovery in consumer traffic and continued cost discipline. Investors should track weekly/monthly demand signals, euro/GBP EUR exposure given international exposure, and the progression of new contract wins in the international segment.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LW Focus
21.52%
12.80%
6.94%
17.54%
ALLE
43.80%
19.30%
9.16%
23.41%
EVRG
48.90%
19.50%
1.27%
24.74%
FTV
59.30%
15.70%
1.98%
36.47%
IQV
34.60%
13.50%
4.54%
39.30%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Lamb Weston faces near-term margin headwinds from fixed-cost deleveraging and higher manufacturing costs per pound but is taking meaningful steps to restore profitability through a disciplined restructuring program, capex optimization, and cost management. The QQ1 2025 results show resilience in top-line growth driven by volume and price mix, with an EBITDA outcome at the low end of guidance offset by savings programs and strategic capacity investments. The company’s updated FY2025 guidance remains contingent on the pace of restaurant traffic recovery and successful execution of the restructuring plan, but a stronger international cadence and the ramp of new customer volumes could unlock meaningful upside later in the year. Investors should monitor (1) the speed of demand normalization in the U.S. and key international markets, (2) the realization of ~$55M in FY2025 savings and ~$85M in FY2026, (3) ERP-related stabilization and potential capex deltas, and (4) the progression of environmental capex costs and potential incentives. Relative to peers in the packaged foods space, Lamb Weston’s margin profile is modestly below typical 20–25% gross margins in a normalized cycle, but the company appears to be positioned to improve profitability through capacity optimization, product mix management, and international growth. Given valuation metrics (P/E around the mid-teens and P/B around 4.5–5x historically for the sector) and a clear path to cash generation if demand recovers, the stock could offer a balanced return with upside tied to the timing of fried-potato category recovery and execution of cost-saving initiatives.
Key Investment Factors
Growth Potential
International expansion and new capacity (Netherlands, Argentina) support upside in volumes; sustained price discipline and inflation-driven pricing actions in Europe and carryover pricing in North America can help stabilize gross margins. Early Q1 gains in volume and continued progress on new customer wins in the international channel suggest capability to offset North American share losses over time. The projected ramp of volume from international customers beginning in Q3–Q4 2025 could provide meaningful upside to the top line if demand trends improve.
Profitability Risk
Near-term margin compression from fixed-cost deleveraging due to plant curtailments; costs from voluntary product withdrawal; ongoing ERP implementation risk and timing; environmental capex commitments with potential regulatory changes; commodity input volatility and reliance on potato crop costs; and exposure to cyclical restaurant traffic that remains negative in the near term.
Financial Position
Solid liquidity with $120.8M cash and $1B available revolver; net debt ~ $3.94B, leverage ~3.0x. 1Q operating cash flow of $330.2M and capex of $325.9M yielded free cash flow of $4.3M. The company targets capex around $750M in FY2025 and expects to generate yearly savings of ~$55M in 2025 and ~$85M in 2026 from restructuring, supporting margin resilience and cash generation. The plan to reduce SG&A to $680–$690M and the capex discipline support a constructive long-term balance sheet trajectory if volume recovers.
SWOT Analysis
Strengths
Global scale with diversified frozen potato product portfolio and multiple end-markets ( Global Foodservice, Retail, Other ).