Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fiscal first quarter 2019 results.
Tom Werner, President and CEO:
“We’re pleased with our solid results in the first quarter, with each of our core business segments driving sales growth and expanding product contribution margins.”
“Our results continue to reflect the strong execution by our commercial, supply chain and support teams, as well as our ongoing commitment to invest in our production capacity, operating, sales and product innovation capabilities to support our customers’ growth, improve operating efficiency and execute on our strategies over the long term.”
“For the remainder of fiscal 2019, we continue to anticipate the operating environment in North America will remain generally favorable, with solid demand for frozen potato products and tight manufacturing capacity.”
“However, we expect that our European joint venture, Lamb Weston/Meijer, will face challenges arising from a poor potato crop.”
“Although it’s too early to determine the full impact of these challenges, we believe that Lamb Weston/Meijer’s pricing and cost reduction actions, along with opportunities in our North American and export businesses, enable us to remain on track to deliver on our fiscal 2019 targets.”
Summary of First Quarter FY 2019 Results
Q1 2019 Commentary
Net sales were $914.9 million, up 12 percent versus the year-ago period. Price/mix increased 8 percent due to pricing actions and favorable product and customer mix. Volume increased 4 percent, driven by growth in the Company’s Global and Retail segments.
Income from operations rose 11 percent to $152.6 million from the prior year period, which included $2.2 million of pre-tax costs related to the Company’s separation from Conagra Brands, Inc. (formerly ConAgra Foods, Inc., “Conagra”) on November 9, 2016.
Excluding this comparability item, income from operations grew $12.8 million, or 9 percent, driven by higher sales and gross profit. Gross profit increased $34.3 million due to favorable price/mix, volume growth, and supply chain efficiency savings.
This increase was partially offset by transportation, warehousing, input and manufacturing cost inflation, and higher depreciation expense primarily associated with the Company’s french fry production line in Richland, Washington, which started operating in the second quarter of fiscal 2018. In addition, gross profit included a $5.6 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current quarter, compared with a $3.2 million gain in the prior year period.
The rise in gross profit was partially offset by a $21.5 million increase in selling, general and administrative expenses (“SG&A”), excluding comparability items. The increase includes approximately $7 million of unfavorable foreign exchange, a $5 million increase in incentive compensation expense, primarily reflecting an increase in stock price and absolute shares outstanding, and a $3 million increase in advertising and promotional support. The remainder of the increase was largely driven by higher expenses related to information technology services and infrastructure, as well as investments in the Company’s sales, marketing and operating capabilities.
Adjusted EBITDA including unconsolidated joint ventures(1) was $212.9 million, up 11 percent versus the prior year quarter, primarily due to growth in income from operations.
Diluted EPS increased $0.17, or 30 percent, to $0.73, while Adjusted Diluted EPS(1) increased $0.16, or 28 percent, to $0.73. A lower U.S. corporate tax rate related to the U.S. Tax Cuts and Jobs Act (the “Tax Act”) increased Diluted EPS $0.10. The remaining increase reflects growth in income from operations.
The Company’s effective tax rate(2) was 23.5 percent in the first quarter of fiscal 2019, versus 33.3 percent in the prior year period. The lower rate in the first quarter of fiscal 2019 is attributable to the effects of the Tax Act enacted in December 2017.
