Potato products company Lamb Weston (NYSE:LW) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 7.6% year on year to $1.60 billion. The company’s full-year revenue guidance of $6.4 billion at the midpoint came in 3.7% below analysts’ estimates. Its non-GAAP profit of $0.66 per share was 34.3% below analysts’ consensus estimates.
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Lamb Weston (LW) Q4 CY2024 Highlights:
- Revenue: $1.60 billion vs analyst estimates of $1.67 billion (7.6% year-on-year decline, 4.3% miss)
- Adjusted EPS: $0.66 vs analyst expectations of $1.01 (34.3% miss)
- Adjusted EBITDA: $281.9 million vs analyst estimates of $331.7 million (17.6% margin, 15% miss)
- The company dropped its revenue guidance for the full year to $6.4 billion at the midpoint from $6.7 billion, a 4.5% decrease
- Management lowered its full-year Adjusted EPS guidance to $3.13 at the midpoint, a 26.5% decrease
- EBITDA guidance for the full year is $1.19 billion at the midpoint, below analyst estimates of $1.37 billion
- Operating Margin: 1.2%, down from 17.6% in the same quarter last year
- Free Cash Flow was -$49.6 million compared to -$119.7 million in the same quarter last year
- Organic Revenue fell 8% year on year (36% in the same quarter last year)
- Sales Volumes fell 6% year on year (24% in the same quarter last year)
- Market Capitalization: $11.15 billion
“Our financial results in the second quarter were below our expectations,” said Tom Werner, President and CEO.
Company Overview
Best known for its Grown in Idaho brand, Lamb Weston (NYSE:LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Shelf-Stable Food
As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales Growth
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Lamb Weston carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, it can still flex high growth rates because it’s working from a smaller revenue base.
As you can see below, Lamb Weston’s sales grew at an impressive 17.5% compounded annual growth rate over the last three years as consumers bought more of its products.
This quarter, Lamb Weston missed Wall Street’s estimates and reported a rather uninspiring 7.6% year-on-year revenue decline, generating $1.60 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 7.4% over the next 12 months, a deceleration versus the last three years. Still, this projection is above the sector average and suggests the market is factoring in some success for its newer products.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether Lamb Weston generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, Lamb Weston’s average quarterly volume growth was a robust 8.4%. In the context of its 20.5% average organic revenue growth, we can deduce that the company’s gains have been evenly split between price increases and more customers purchasing its products.
In Lamb Weston’s Q4 2025, sales volumes dropped 6% year on year. This result was a reversal from its historical levels. A one quarter hiccup shouldn’t deter you from investing in a business, and we’ll be monitoring the company to see how things progress.
Key Takeaways from Lamb Weston’s Q4 Results
We struggled to find many resounding positives in these results. Revenue and EPS missed by meaningful amounts. Its full-year revenue guidance missed significantly and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 13% to $67.98 immediately following the results.
Lamb Weston didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
