The risk/reward is asymmetric. Lamb Weston is at its lowest valuation. Either there is longer-term trouble with the industry's growth prospects and competitive intensity, or the shares are set up for a double.
Two adverse developments were known but not quantified during FQ3: 1) ERP issues leading to missed sales and 2) the slowdown in the QSR sector, highlighted by McDonald’s weakening trends.
- ERP was a known headwind for the Q, but it was worse than management expected. Importantly, it was contained in the Q. Its impact was included in previous guidance, but in Q3, it had a -$.37 impact.
- McDonald's foreshadowed the slowdown in QSR sales. Lamb Weston volumes declined 17% in FQ3. Half was due to the ERP issue. ~LSD% was due to exiting low-margin contracts, which were known and in the projections, and another ~LSD% was due to the industry slowdown. The company wrote down potatoes further (reflecting lower demand), which was a -$.13 impact.
Has Lamb Weston and the industry taken too much price? Is Lamb Weston over-earning? Will capacity additions undermine pricing? Our Black Book presentation will explore QSR and the broader restaurant industry's growth trends and outlook, industry pricing, competitive dynamics, potato inventories, modeling details, and more.
Event Details:April 12th at 12:30 PM ET To view the webcast: CLICK HERE To add to your Outlook Calendar: Click Here |
