Lamb Weston Reports Fiscal Fourth Quarter and Full Year 2019 Results; Provides Fiscal Year 2020 Outlook

Fourth Quarter 2019 Highlights

  • Net sales increased 9% to $1,003 million
  • Income from operations increased 11% to $148 million
  • Adjusted EBITDA including unconsolidated joint ventures(1) increased 6% to $215 million
  • Diluted EPS increased 10% to $0.75 from $0.68
  • Adjusted Diluted EPS(1) increased 14% to $0.74 from $0.65

Full Year 2019 Highlights

  • Net sales increased 10% to $3,757 million
  • Income from operations increased 15% to $668 million
  • Adjusted EBITDA including unconsolidated joint ventures(1) increased 10% to $904 million
  • Diluted EPS increased 13% to $3.18 from $2.82
  • Adjusted Diluted EPS(1) increased 21% to $3.22 from $2.66, and includes a $0.17 incremental benefit from a lower tax rate as a result of U.S. tax reform(3)
  • Cash flow from operations increased 42% to $681 million
  • Returned $145 million of cash to stockholders in the form of both dividends and share repurchases

Fiscal Year 2020 Outlook, Including the Contribution of a 53rd week

  • Net sales expected to increase mid-single digits
  • Adjusted EBITDA including unconsolidated joint ventures(1) expected to be $950 million-$970 million

EAGLE, Idaho–(BUSINESS WIRE)–Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fourth quarter and full year 2019 results, and provided its outlook for fiscal 2020.

“In fiscal 2019, we delivered another year of record financial results, including sales growth of nearly 10 percent, as well as double-digit increases in earnings and cash flow from operations,” said Tom Werner, President and CEO. “Our strong performance reflects our commercial, supply chain and support teams’ successful execution of our operational and strategic objectives to support our customers and drive sustainable, profitable growth. Specifically, this includes, our commitment to uphold high levels of service, drive product innovation and invest in additional manufacturing capacity.”

“For fiscal 2020, we believe the overall operating environment will continue to be generally favorable. We expect continued solid demand growth in our markets and that new industry capacity in North America and Europe will allow processors to operate their factories at more normalized rates. We continue to take a prudent approach to our financial outlook and expect to deliver sales and earnings growth in line with our long-term targets. For sales, we anticipate solid volume growth as well as improvements in price/mix, which will enable us to offset input cost inflation. While we expect that increased spending to upgrade enterprise-wide information systems will temper earnings growth this year, we believe that these near-term investments to improve operating efficiencies, and our continued focus on executing on our strategies, will have us well-positioned to generate sustainable top- and bottom-line growth and create value for our shareholders over the long term.”

 

 

 

 

 

 

 

 

 

 

 

Summary of Fourth Quarter and FY 2019 Full Year Results

($ in millions, except per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

Year-Over-Year

 

 

Q4 2019

 

Growth Rates

 

FY 2019

 

Growth Rates

Net sales

 

$

1,003.4

 

9%

 

$

3,756.5

 

10%

Income from operations

 

$

148.0

 

11%

 

$

668.4

 

15%

Net income attributable to Lamb Weston

 

$

110.4

 

10%

 

$

478.6

 

15%

Diluted EPS

 

$

0.75

 

10%

 

$

3.18

 

13%

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA including unconsolidated joint ventures(1)

 

$

215.4

 

6%

 

$

904.3

 

10%

Adjusted Diluted EPS(1)

 

$

0.74

 

14%

 

$

3.22

 

21%

Q4 2019 Commentary

Net sales increased $85.2 million to $1,003.4 million, up 9 percent versus the year-ago period. Volume increased 6 percent, primarily driven by growth in the Company’s Global segment. Price/mix increased 3 percent due to pricing actions and favorable mix.

Income from operations rose 11 percent to $148.0 million versus the year-ago period, which included $0.8 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 $13.7 million, or 10 percent, driven by higher sales and gross profit. Gross profit increased $17.8 million due to favorable price/mix, volume growth and supply chain efficiency savings. This increase was partially offset by input, manufacturing and transportation cost inflation, as well as approximately $3 million of costs related to the start-up of the Company’s new french fry production line in Hermiston, Oregon. In addition, gross profit included a $7.5 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current quarter, compared with a $1.2 million loss related to these items in the prior year quarter.

The increase in gross profit was partially offset by a $4.1 million increase in selling, general and administrative expenses (“SG&A”), excluding comparability items. The increase in SG&A 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, partially offset by an approximate $4 million decline in advertising and promotional expenses.

Adjusted EBITDA including unconsolidated joint ventures(1) increased $12.9 million to $215.4 million, up 6 percent versus the prior year period, primarily due to growth in income from operations and an approximate $4 million incremental benefit from acquiring the remaining 50.01% equity interest in the Company’s joint venture (the “BSW Acquisition”), Lamb Weston BSW, LLC (“Lamb Weston BSW”), partially offset by lower equity method investment earnings.

Diluted EPS increased $0.07, or 10 percent, to $0.75. The increase largely reflects growth in income from operations and an approximate $0.02 benefit from the BSW Acquisition. The increase was partially offset by lower equity method investment earnings. The fourth quarter of fiscal 2019 included a $0.02 incremental benefit related to a lower tax rate that was offset by a $0.02 decrease in tax benefit comparability items arising from the U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017 (3).

Adjusted Diluted EPS(1) increased $0.09, or 14 percent, to $0.74. The increase primarily reflects growth in income from operations, a $0.02 incremental benefit related to a lower tax rate, and an approximate $0.02 benefit from the BSW Acquisition, partially offset by lower equity method investment earnings.

The Company’s effective tax rate(2) in the fourth quarter of fiscal 2019 was 18.9 percent, and includes a $1.4 million, or $0.01 per share, income tax benefit related to the true-up of the transition tax on previously untaxed foreign earnings under the Tax Act. Excluding this comparability item, the Company’s effective tax rate for the fourth quarter fiscal 2019 was 19.9 percent. Tax expense in the fourth quarter of fiscal 2018 included a provisional $4.4 million, or $0.03 per share, net benefit attributable to the effects of the Tax Act. Excluding this comparability item(3), the Company’s effective tax rate for the fourth quarter of fiscal 2018 was 24.8 percent.

Q4 2019 Segment Highlights

Global

 

 

 

 

 

 

 

 

 

 

Global Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

Q4 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

526.5

 

13%

 

3%

 

10%

Segment product contribution margin(1)

 

$

110.7

 

11%

 

 

 

 

Net sales for the Global segment, which is comprised of the top 100 North American based restaurant chain customers as well as the Company’s international business, increased $61.8 million to $526.5 million, up 13 percent compared to the prior year period. Volume increased 10 percent, driven by growth in sales to strategic customers in the U.S. and key international markets, as well as the benefit of limited time product offerings. Price/mix increased 3 percent, largely reflecting pricing adjustments associated with multi-year contracts.

Global segment product contribution margin(1) increased $11.0 million to $110.7 million, up 11 percent compared to the prior year period. Favorable price/mix, volume growth and supply chain efficiency savings drove the increase, more than offsetting input, manufacturing and transportation cost inflation.

Foodservice

 

 

 

 

 

 

 

 

 

 

Foodservice Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

Q4 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

313.1

 

7%

 

6%

 

1%

Segment product contribution margin(1)

 

$

108.3

 

16%

 

 

 

 

Net sales for the Foodservice segment, which services North American foodservice distributors and restaurant chains outside the top 100 North American based restaurant chain customers, increased $19.8 million to $313.1 million, up 7 percent compared to the prior year period. Price/mix increased 6 percent, primarily reflecting pricing actions initiated in the fall of 2018, as well as improved mix. Volume increased 1 percent, led by growth in Lamb Weston branded products.

Foodservice segment product contribution margin(1) increased $14.6 million to $108.3 million, up 16 percent compared to the prior year period, as favorable price/mix and supply chain efficiency savings more than offset input, manufacturing and transportation cost inflation.

Retail

 

 

 

 

 

 

 

 

 

 

Retail Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

Q4 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

129.2

 

3%

 

(1%)

 

4%

Segment product contribution margin(1)

 

$

21.0

 

(1%)

 

 

 

 

Net sales for the Retail segment, which includes sales of branded and private label products to grocery, mass merchant and club customers in North America, increased $4.2 million to $129.2 million, up 3 percent compared to the prior year period. Volume increased 4 percent, primarily driven by increased sales of Grown in Idaho and other branded products, as well as private label products. Price/mix decreased 1 percent, largely due to increased trade support behind the Company’s branded portfolio.

Retail segment product contribution margin(1) declined $0.3 million to $21.0 million, down 1 percent compared to the prior year period, as lower price/mix more than offset favorable volume and lower advertising and promotional expense.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures in Europe and the U.S. were $15.2 million and $25.1 million for the fourth quarter of fiscal 2019 and 2018, respectively. These amounts included a $1.3 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the current quarter and a $3.3 million loss related to these items in the prior year quarter. Excluding these adjustments, earnings from equity method investments declined $11.9 million compared to the prior year period, largely reflecting higher raw potato prices and lower sales volumes associated with a poor crop in Europe.

Fiscal Year 2019 Commentary

Net sales were $3,756.5 million, up 10 percent compared to fiscal 2018. Volume increased 5 percent, primarily driven by growth in the Company’s Global segment. Price/mix increased 5 percent due to pricing actions and favorable product and customer mix.

Income from operations rose 15 percent to $668.4 million from the prior year, which included $8.7 million of costs related to the spinoff from Conagra.

Excluding these comparability items, income from operations grew $79.6 million, or 14 percent, driven by higher gross profit. Gross profit increased $124.0 million, due to favorable price/mix, volume and supply chain efficiency savings. The increase was partially offset by transportation, warehousing, input and manufacturing cost inflation, as well as higher depreciation expense primarily associated with the Company’s new french fry production line in Richland, Washington. In addition, gross profit included a $10.8 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current year, compared with a nominal gain related to these items in the prior year.

The rise in gross profit was partially offset by a $44.4 million increase in SG&A, excluding comparability items. The increase in SG&A 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. The increase was also driven by approximately $8 million of unfavorable foreign exchange (reflecting an approximate $3 million expense in fiscal 2019 compared to an approximate $5 million benefit in fiscal 2018), an approximate $2 million increase in incentive compensation expense that primarily reflected an increase in stock price and total shares outstanding, and an approximate $1 million increase in advertising and promotional support, partially offset by an approximate $4 million benefit from an insurance settlement.

Adjusted EBITDA including unconsolidated joint ventures(1) was $904.3 million, up 10 percent versus the prior year, reflecting growth in income from operations, and an approximate $8 million incremental benefit from the BSW Acquisition, partially offset by lower equity method investment earnings.

Diluted EPS increased $0.36, or 13 percent, to $3.18. The increase largely reflects growth in income from operations, partially offset by lower equity method investment earnings and an approximate $0.02 net decrease related to the BSW Acquisition. Fiscal 2019 included a $0.17 incremental benefit related to a lower tax rate that was offset by a $0.17 decrease in tax benefit comparability items related to the Tax Act(3).

Adjusted Diluted EPS(1) increased $0.56, or 21 percent, to $3.22. The increase was driven by growth in income from operations, a $0.17 incremental benefit related to a lower tax rate, and an approximate $0.05 benefit from the BSW Acquisition, partially offset by lower equity method investment earnings.

The Company’s effective tax rate(2) was 21.5 percent for fiscal 2019, and includes a $2.4 million decrease in income tax expense related to the true-up of the transition tax on previously untaxed foreign earnings under the Tax Act. Excluding this comparability item, the Company’s effective tax rate for fiscal 2019 was 21.9 percent. Tax expense in fiscal 2018 included a provisional $28.4 million net benefit attributable to the effects of the Tax Act. The Company’s effective tax rate in fiscal 2018, excluding this comparability item, was 27.0 percent. The difference between the tax rates, excluding comparability items, primarily related to the phase in of the lower U.S. statutory rate under the Tax Act in fiscal 2018.

Fiscal Year 2019 Segment Highlights

Global

 

 

 

 

 

 

 

 

 

 

Global Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

FY 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

1,961.5

 

12%

 

5%

 

7%

Segment product contribution margin(1)

 

$

446.3

 

19%

 

 

 

 

Net sales for the Global segment increased $217.3 million to $1,961.5 million, up 12 percent compared to fiscal 2018. Volume increased 7 percent, driven by growth in sales to strategic customers in the U.S. and key international markets, as well as the benefit of limited time product offerings. Price/mix increased 5 percent, largely reflecting pricing actions and favorable customer mix.

Global segment product contribution margin(1) increased $70.6 million to $446.3 million, up 19 percent compared to fiscal 2018. Favorable price/mix, volume growth and supply chain efficiency savings drove the increase, more than offsetting input, manufacturing and transportation cost inflation, as well as higher depreciation expense primarily associated with the addition of the new production line in Richland, Washington.

Foodservice

 

 

 

 

 

 

 

 

 

 

Foodservice Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

FY 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

1,156.1

 

5%

 

5%

 

0%

Segment product contribution margin(1)

 

$

402.4

 

10%

 

 

 

 

Net sales for the Foodservice segment increased $57.0 million to $1,156.1 million, up 5 percent compared to fiscal 2018. Price/mix increased 5 percent, primarily reflecting pricing actions initiated in the fall of 2018, as well as improved mix. Volume declined nominally, as the loss of some distributor and operator-label product volumes essentially offset growth in branded products.

Foodservice segment product contribution margin(1) increased $36.5 million to $402.4 million, up 10 percent compared to fiscal 2018, as favorable price/mix and supply chain efficiency savings more than offset input, manufacturing and transportation cost inflation, as well as higher depreciation expense primarily associated with the Richland production line.

Retail

 

 

 

 

 

 

 

 

 

 

Retail Segment Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-Over-Year

 

 

 

 

 

 

 

FY 2019

 

Growth Rates

 

Price/Mix

 

Volume

 

 

 

($ in mil.)

 

 

 

 

 

 

Net sales

 

$

498.3

 

11%

 

4%

 

7%

Segment product contribution margin(1)

 

$

98.8

 

13%

 

 

 

 

Net sales for the Retail segment increased $49.1 million to $498.3 million, up 11 percent compared to fiscal 2018. Volume increased 7 percent, primarily driven by distribution gains of Grown in Idaho and other branded products. Price/mix increased 4 percent, largely due to improved mix and pricing actions.

Retail segment product contribution margin(1) increased $11.5 million to $98.8 million, up 13 percent compared to fiscal 2018, as volume growth and favorable price/mix more than offset input, manufacturing and transportation cost inflation. Advertising and promotional expense also increased versus the prior year period, primarily in support of Grown in Idaho and other branded products.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures in the U.S. and Europe were $59.5 million and $83.6 million for fiscal 2019 and 2018, respectively. These amounts included a $2.6 million unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in fiscal 2019 and a nominal unrealized loss related to these items in fiscal 2018. Excluding these adjustments, earnings from equity method investments declined $21.6 million compared to the prior year period, largely reflecting higher raw potato prices and lower sales volumes associated with a poor crop in Europe.

Cash Flow

Net cash from operating activities increased $199.7 million to $680.9 million, primarily driven by earnings growth. Capital expenditures were $334.2 million in fiscal 2019 as the Company completed the construction of a new production line in Hermiston, Oregon, in the fourth quarter. This represents a $27.4 million increase from fiscal 2018 which included the completion of a new production line in Richland, Washington.

Capital Returned to Shareholders

In fiscal 2019, the Company returned a total of $145.1 million to shareholders, including $113.3 million in dividends and $31.8 million in share repurchases. The average price per share repurchased was $69.40. The Company has $218.2 million remaining under its current $250 million share repurchase authorization.

Other Information

The Company expects to report a material weakness in internal control in its upcoming fiscal 2019 Form 10-K. The weakness relates to a deficiency in an information technology general control. The Company believes that this matter will not result in any changes to the financial results presented in this release or otherwise affect its consolidated financial statements. Remediation efforts are underway and the Company expects to complete the remediation of this material weakness prior to the end of fiscal year 2020.

Outlook

The Company provides guidance on its financial outlook on a non-GAAP basis and does not reconcile guidance to GAAP as the Company cannot predict items impacting comparability that are included in reported GAAP results. These items are discussed in more detail in the notes to this press release.

The Company’s fiscal 2020 outlook includes the contribution of a 53rd week in the fiscal period, with the additional week falling in the fourth quarter.

FY 2020 Outlook Summary

 

 

Net sales growth rate

Mid-Single Digit Range

 

 

 

 

Adjusted EBITDA including unconsolidated joint ventures(1)

$950 million to $970 million

 

 

 

 

Interest expense

Approximately $110 million

 

 

 

 

Effective tax rate(2) excluding comparability items

23% to 24%

 

 

 

 

Cash used for capital expenditures, excluding acquisitions

Approximately $275 million

 

 

 

 

Depreciation and amortization

Approximately $175 million

 

 

As summarized in the table above, for fiscal 2020, the Company expects:

  • Net sales to grow mid-single digits, largely driven by volume as well as modestly higher price/mix.
  • Adjusted EBITDA including unconsolidated joint ventures(1) in the range of $950 million to $970 million. The Company expects:

    • Volume-driven gross profit growth, with higher price/mix offsetting input cost inflation;
    • SG&A, excluding advertising and promotional expenses and investments to upgrade the Company’s enterprise resource planning and other information systems infrastructure, to be 8.0 percent to 8.5 percent of net sales.
  • Equity method investment earnings to improve versus fiscal 2019, reflecting the effect of a normalized raw potato cost environment in Europe.

End Notes

(1)

 

Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Diluted EPS and segment product contribution margin are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures, including a discussion of earnings guidance provided on a non-GAAP basis, and the reconciliations at the end of this press release for more information.

 

(2)

The effective tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

 

(3)

 

The Tax Act had the following effect during the fourth quarter and full year of fiscal 2019 and 2018, respectively, as follows (dollars in millions, except per share amounts):

 

 

Q4 2019

 

Q4 2018

 

Inc/(Dec)

 

 

Income

 

 

 

Income

 

 

 

Income

 

 

 

 

Tax

 

Diluted

 

Tax

 

Diluted

 

Tax

 

Diluted

 

 

Benefit

 

EPS

 

Benefit

 

EPS

 

Benefit

 

EPS

Incremental benefit from lower tax rate (a)

 

$

 

2.8

 

$

 

0.02

 

$

 

 

$

 

 

$

 

2.8

 

 

$

 

0.02

 

Comparability items, net (b)

 

 

1.4

 

 

0.01

 

 

4.4

 

 

0.03

 

 

(3.0

)

 

 

(0.02

)

Impact of Tax Act

 

$

 

4.2

 

$

 

0.03

 

$

 

4.4

 

$

 

0.03

 

$

 

(0.2

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FY 2019

 

FY 2018

 

Inc/(Dec)

 

 

Income

 

 

 

Income

 

 

 

Income

 

 

 

 

Tax

 

Diluted

 

Tax

 

Diluted

 

Tax

 

Diluted

 

 

Benefit

 

EPS

 

Benefit

 

EPS

 

Benefit

 

EPS

Incremental benefit from lower tax rate (a)

 

$

 

24.8

 

$

 

0.17

 

$

 

 

$

 

 

$

 

24.8

 

 

$

 

0.17

 

Comparability items, net (b)

 

 

2.4

 

 

0.02

 

 

28.4

 

 

0.19

 

 

(26.0

)

 

 

(0.17

)

Impact of Tax Act

 

$

 

27.2

 

$

 

0.19

 

$

 

28.4

 

$

 

0.19

 

$

 

(1.2

)

 

$

 

________________

(a)

 

Since our fiscal year-end is the last Sunday in May, the impact of the lower U.S. statutory income tax rate from the Tax Act was phased in during fiscal 2018, resulting in a U.S. statutory tax rate of 29.3% for fiscal 2018. The U.S. statutory tax rate was 21% in fiscal 2019.

 

(b)

The fourth quarter and fiscal 2019, included a $1.4 million, or $0.01 per diluted share, and $2.4 million, or $0.02 per diluted share, respectively, decrease in income tax expense related to the true-up of the transition tax on previously untaxed foreign earnings under the Tax Act.

The fourth quarter of fiscal 2018 included a provisional $4.4 million, or $0.03 per diluted share, net benefit, comprised of a $3.2 million decrease in the Company’s estimate of the transition tax owed on previously untaxed foreign earnings and a $1.2 million benefit from the estimated impact of remeasuring the Company’s net U.S. deferred tax liabilities on its balance sheet at a lower tax rate.

Fiscal 2018 included a provisional $28.4 million, or $0.19 per diluted share, net benefit, comprised of a $39.9 million benefit from the estimated impact of remeasuring the Company’s net U.S. deferred tax liabilities on its balance sheet at a lower tax rate, partially offset by an $11.5 million transition tax on its previously untaxed foreign earnings.

Contacts

Investors:

Dexter Congbalay

224-306-1535

dexter.congbalay@lambweston.com

Media:

Shelby Stoolman

208-424-5461

shelby.stoolman@lambweston.com

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