The Lamb Weston first quarter earnings call began with an introduction from the operator, followed by remarks from Dexter Congbalay, the VP of Investor Relations and Strategy. Congbalay reminded listeners that forward-looking statements and non-GAAP financial measures would be discussed and encouraged them to refer to SEC filings for more details. Tom Werner, President and CEO, provided an overview of the current operating environment, highlighting the company's progress with integration, capacity expansion, and modernization efforts. Bernadette Madarieta, CFO, then shared details on the first quarter results and updated outlook for fiscal 2024.

The company's supply chain and commercial teams have been productive and focused on customer service and innovation. The decrease in volume was expected due to the company's decision to exit lower-priced, lower-margin business, but they expect it to improve as they replace it with higher-margin business. The global frozen potato category is balanced and demand for fries remains steady. Restaurant traffic in key markets was solid, with QSR traffic offsetting declines in full-service restaurants. This may be due to inflation and other macro pressures favoring QSR traffic. In Europe, restaurant traffic grew in many key markets, including the UK, France, Germany, Italy, and Spain.

The paragraph discusses the restaurant traffic trends in Asia, specifically in China and Japan, as well as the impact of inflation and uncertainty on consumer behavior. The company expects input cost inflation in the mid-to-high single-digits, primarily driven by higher contract prices for potatoes. They have already announced pricing actions to offset this inflation and are finalizing contracts with customers. The upcoming potato crop in North America and Europe is expected to be in line with historical averages, with a final assessment to be provided in early January.

In summary, the company had a strong first quarter with a 48% increase in sales, driven by acquisitions and price-mix improvements. The overall category remains healthy and the company has raised its fiscal 2024 financial targets. The EMEA operations will continue to contribute to sales in the second and third quarters. Excluding acquisitions, net sales grew 15% with a favorable mix due to strategic management of products and customers.

The company saw a couple of percentage points benefit in price-mix due to lower-than-expected trade spending and lower freight charges passed on to customers. Sales volumes declined 8% due to exiting lower-priced contracts and inventory destocking, but this should have little impact on future results. Volume elasticities have been low and the company expects volume trends to improve as they backfill with higher-margin business. Gross profit increased primarily due to pricing actions, trade spending, mix improvement, and supply chain productivity, which offset higher costs and lower volumes.

In the first quarter, roughly one-quarter of the increase in earnings was due to consolidating EMEA. Gross margin percentage, excluding comparability items, increased by 480 basis points to 29.4%, with trade spending accounting for about 200 basis points of the increase. Input costs continued to rise, driven by higher prices for contracted potatoes and increased labor, energy, and ingredient costs. SG&A expenses increased by $45 million, with more than half of the increase from consolidating EMEA. Adjusted EBITDA increased by 76% to $413 million, with most of the growth coming from higher sales and gross profit in the base business. The company now operates in two reporting segments: North America and International. Sales in the North America segment, which includes sales to customers in the US, Canada, and Mexico, increased by 19% in the quarter.

The price mix for the company increased by 24% due to various factors such as pricing actions, trade spending, and revenue growth management initiatives. However, there was a decline in volume in North America by 5% due to the company's decision to exit lower-priced and lower-margin contracts and inventory destocking by certain retail customers. The North America segment's adjusted EBITDA increased by $148 million, while the International segment saw a sales growth of $360 million, primarily due to acquisitions. Excluding acquisitions, net sales declined by 9%, and volume decreased by 27% due to the company's decision to exit two low-price and low-margin accounts and continued inventory destocking. However, the company believes that the impact of destocking is mostly over.

Despite a decline in volume, the International segment's adjusted EBITDA increased due to consolidation of EMEA's financial results and favorable price mix. The company maintains a solid balance sheet with ample liquidity and low leverage ratio. Cash flow from operations increased significantly, and capital expenditures were higher due to expansion projects. The company returned cash to shareholders through dividends and share repurchases, and will continue to be opportunistic with buybacks. The fiscal 2024 outlook has been raised due to strong first quarter performance, despite challenging macro operating conditions.

The company expects their potato crops in North America and Europe to be consistent with pre-pandemic levels and is pleased with the progress of renewing contracts. They have increased their annual net sales target to $6.8 billion to $7 billion, with $1.1 billion to $1.2 billion attributed to EMEA. They expect a 6.5% to 8.5% net sales growth, excluding acquisitions, and a low-double-digit increase in price mix. However, volume is expected to be down mid-single-digits compared to last year, but is expected to improve as the year progresses. The company has also raised their adjusted EBITDA target and left their SG&A target unchanged.

The company's first quarter results suggest a lower spending target, but they anticipate it will increase as the year progresses. They have reduced their interest expense target and their other financial targets remain the same. The company is executing strategies to deliver strong top and bottom-line growth and is confident in the health of the category. They have raised their full year sales and earnings targets and will be hosting an Investor Day to discuss their long-term financial targets and strategies for growth.

The speaker informs the audience that they can access the presentation through a webcast on their website. They then take a question from Peter Galbo from Bank of America and discuss volume and pricing for the year. Tom Werner mentions that they are maintaining pricing discipline and have lost volume from four accounts, one of which was losing money. He also states that they have a plan to backfill this volume, but it will take time. They expect volume to improve in the next quarter and the second half of the year.

The company is confident in their growth strategy and expects to see an increase in sales and earnings in the second half of the year. They have identified areas for organic growth and have also chosen to walk away from certain business that was impacting their international sales. The crop is in good shape worldwide and is not expected to have any impact on the industry. The increase in guidance is mainly due to higher sales in EMEA and a better gross margin outlook, possibly due to pricing and lower COGS inflation.

Bernadette Madarieta and Tom Palmer of Bernadette Madarieta discuss the financial targets and operating momentum of their business. They mention that pricing has been the main driver of this momentum, but they are being cautious due to the current macro-environment and consumer health uncertainty. They also mention that their gross margin may not follow the usual seasonal pattern due to lapping pricing actions from the previous year and timing of customer trade claims. They also mention that they are moving away from lower margin business.

The speaker is unable to provide specific details about the proportion of traditional versus upgraded products in the company's business currently, but will cover it in an upcoming investor call. They mention that strong price mix performance was a major factor in their better-than-expected financial results. The speaker also discusses the performance of the acquired EMEA business, which they feel good about but cannot provide specific numbers for comparison.

During a conference call, Matt Smith asks Tom Werner about the impact of walking away from low-margin contracts and if the company expects to see positive volume trends in the back half of the year. Tom Werner confirms that they expect to see positive volume trends due to lapping the exited business and backfilling with higher margin business. He also mentions that the capacity in China came online in the quarter and the American Falls facility is still expected to begin production in early 2024. The call then moves on to the next question.

Robert Moskow from TD Cowen asks about volume projections for the second half of the year and if it will also be positive in the third quarter. Bernadette Madarieta clarifies that they started walking away from volume in the third and fourth quarter of last year and expect to see continued improvement as they lap that business and bring on new business. Moskow also asks about the percentage of contracts up for renewal and Madarieta mentions that about 20% are currently in play. Tom Werner adds that they feel confident about where they are at in those discussions.

The company is focused on increasing profit dollars and has seen significant margin recovery. They will discuss their plans for the next fiscal year during their July call. Contracting discussions typically take place in late spring through early fall.

Tom Werner addresses confusion around the company's profit strategy and margin erosion. He clarifies that they will stay disciplined with their revenue growth management and maintain their margin profile, as evidenced by their decision to walk away from lower margin business. The China plant is now up and running, and the company remains focused on their profit strategy.

Tom Werner, CEO of Lamb Weston, discusses the company's new facility in China and its potential for growth in the non-US market. He also mentions that it will take some time for the facility to become fully operational and for the impact to be seen. In Europe, traffic is up, possibly due to a softening of COVID-related restrictions and better energy costs. The harvest is also in line with historic averages after two difficult years.

Tom Werner and Bernadette Madarieta from SunPower Corporation discuss the company's cost and contract raw input structure. They mention that the structure is already set for this fiscal year and will not be impacted by crop yields. They also mention that the European market contracts for 75% of their inputs and the remaining 25% is purchased on the open market, which has seen prices come down recently. They decline to comment on upcoming contract negotiations and say they will follow their usual process. William Reuter from Bank of America asks a question, but it is not specified.

In this paragraph, William Reuter asks Bernadette Madarieta about the company's contracts in Europe and North America, the percentage of contracts up for renewal, and the elevated CapEx. Madarieta confirms that 75% of contracts are in Europe and 100% in North America, and 20% of contracts are up for renewal, which is slightly lower than usual. She also mentions that the elevated CapEx fluctuates and will be discussed further at the upcoming Investor Day. Reuter acknowledges that this may be the answer he expected. The operator then concludes the Q&A session and Dexter Congbalay thanks everyone for joining the call and reminds them of the upcoming Investor Day.

This summary was generated with AI and may contain some inaccuracies.