Executive Summary
Lamb Weston reported a challenging QQ2 2025 with revenue of $1.6009 billion, down 7.6% year over year and 3.2% quarter over quarter, and GAAP net income of -$36.1 million (EPS -$0.25). Adjusted EBITDA was $282 million, down from the prior year, driven by a $135 million gross profit decline amid price/mix headwinds, higher input costs, unplanned downtime, and start-up costs associated with capacity expansions. Management framed the weaker quarter as part of a broader, near-term operating environment characterized by weak restaurant traffic and intensified competition, particularly outside North America, compounded by aggressive capacity additions by peers. In response, Lamb Weston is accelerating its cost-structure and capital-reduction initiatives, including a reduction in growth capex and a shift toward base/modernization/environmental capex, with the goal of improving free cash flow and enabling more flexible shareholder returns.\n\nGuidance was updated to reflect the softer year-to-date performance: net sales guidance for fiscal 2025 is reduced to $6.35B–$6.45B and adjusted EBITDA to $1.17B–$1.21B. The company maintains a leverage target of roughly 3.5x and reiterated an ongoing commitment to capital returns, including a recently increased share repurchase authorization and a raised quarterly dividend. Longer-term, management sees a normalization in EBITDA margins in the high-teens to around 20% as cost actions take effect and capacity utilization stabilizes. The earnings call emphasizes a transition in leadership (Mike Smith set to become CEO in January 2025) and a strategic pivot toward non-traditional fry opportunities and expanded total addressable market, while continuing to modernize the asset base and reinforce balance sheet fundamentals.
Key Performance Indicators
QoQ: -21.97% | YoY:-41.59%
QoQ: -91.28% | YoY:-93.95%
QoQ: -128.34% | YoY:-116.79%
QoQ: -128.09% | YoY:-116.89%
Key Insights
Revenue: $1.6009B, YoY -7.6%, QoQ -3.2%. Gross Profit: $277.8M, YoY -41.6%, QoQ -22.0%, Gross Margin: 17.35%. EBITDA (adjusted): $282.0M, YoY/ QoQ not separately disclosed in GAAP figures; EBITDA margin guidance implied around 18–20% in the near term. Operating Income: $18.5M, Margin ~1.16%. Net Income: -$36.1M, EPS -$0.25 (YoY EPS -116.9%, QoQ -128.1%). Cash from Operations: $99.1M in H1; Capex: $148.7M in H1; Free Cash Flow: -$49.6M. Net Debt: $4.031B; Leverage: ~3.4x trailing twelve months....
Financial Highlights
Revenue: $1.6009B, YoY -7.6%, QoQ -3.2%. Gross Profit: $277.8M, YoY -41.6%, QoQ -22.0%, Gross Margin: 17.35%. EBITDA (adjusted): $282.0M, YoY/ QoQ not separately disclosed in GAAP figures; EBITDA margin guidance implied around 18–20% in the near term. Operating Income: $18.5M, Margin ~1.16%. Net Income: -$36.1M, EPS -$0.25 (YoY EPS -116.9%, QoQ -128.1%). Cash from Operations: $99.1M in H1; Capex: $148.7M in H1; Free Cash Flow: -$49.6M. Net Debt: $4.031B; Leverage: ~3.4x trailing twelve months. Cash balance: ~$79.0M; Revolver availability: ~$1.2B. Net Working Capital effects: inventory up; receivables/payables movement contributing to cash flow. Guidance implies modest top-line decline in FY25 with meaningful margin recovery expected in 2026 as cost actions mature.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
1.60B |
-7.57% |
-3.22% |
| Gross Profit |
277.80M |
-41.59% |
-21.97% |
| Operating Income |
18.50M |
-93.95% |
-91.28% |
| Net Income |
-36.10M |
-116.79% |
-128.34% |
| EPS |
-0.25 |
-116.89% |
-128.09% |
Key Financial Ratios
operatingProfitMargin
1.16%
operatingCashFlowPerShare
$0.69
freeCashFlowPerShare
$-0.35
dividendPayoutRatio
-142.9%
priceEarningsRatio
-75.93
Management Commentary
Key themes from management discussion and Q&A: (1) Strategy and leadership transition: CEO Tom Werner to hand over to Mike Smith in Jan 2025; focus remains on profitability and shareholder value. Quote: “our second quarter performance was below our expectations… transitioning to Mike at the helm.” (2) Demand and competitive dynamics: North America and international markets faced weaker restaurant traffic and intensified price competition; the company noted share losses and higher unit costs, with a commitment to regain volume through new customer wins and product/price optimization. (3) Margin and cost actions: Management highlighted four drivers of gross profit decline (price/mix, higher input costs, downtime/startups, and higher depreciation from capacity expansions) and outlined restructuring/cost-reduction initiatives expected to yield $55M in savings in FY2025 and $85M in FY2026. (4) Capital allocation and financial targets: capex reduction plan, maintaining leverage at ~3.5x, and an increased buyback authorization; dividend raised to $0.37 per share with a payout target of 25–35% of earnings. (5) Outlook and TAM expansion: commentary on non-traditional fry customers and potential new TAM opportunities; ongoing ERP implementation and its impact on timing and costs (ERP transition noted as a one-time factor).
“we believe, the go forwards in the range of on an EBITDA basis 19% to 20%.”
— Tom Werner, President and CEO
“the increased authorization combined with the increase in expected free cash flows, provides us with the flexibility to opportunistically buy back shares under the program.”
— Bernadette Madarieta, CFO
Forward Guidance
Outlook and the execution plan are centered on near-term profitability discipline and cash flow generation: • Net sales guidance lowered to $6.35B–$6.45B for FY25 (implies roughly -1% YoY at midpoint). • Adjusted EBITDA target lowered to $1.17B–$1.21B for FY25. • Capex guidance maintains around $750M for FY25, and $550M for FY26 with emphasis on base/maintenance and modernization rather than growth capital; environmental capex (~$75M/year incremental) is set to begin in 2026 and beyond. • In H2, management expects 1%–4% sales growth with International contributing the majority of volume gains alongside North America. • Margin recovery is expected as cost-reduction programs ramp and production efficiencies improve; management projects a normalized EBITDA margin in the 19–20% range going forward, with price/mix actions offsetting inflation over the longer term. Investment implications: monitor (a) demand recovery vs. continued competitive intensity, (b) the cadence and actual realization of cost savings (55M in FY25; 85M annualized in FY26), (c) progress on supply chain optimization under the new Chief Supply Chain Officer, (d) the rate of free cash flow inflection into 2026, and (e) the efficacy of non-traditional TAM initiatives in expanding the addressable market. Overall assessment: the company faces a difficult near-term operating environment but is actively pursuing structural cost improvements, disciplined capex, and shareholder-friendly execution that could yield healthier cash flow and more flexible capital returns in 2026 and beyond.