The Lamb Weston Fourth Quarter and Full Year 2024 Earnings Call has begun, with Dexter Congbalay, Vice President of Investor Relations and Strategy, introducing the speakers. Dexter reminds listeners that forward-looking statements will be made and non-GAAP financial measures will be discussed. Tom Werner, President and CEO, will discuss strategies, priorities, and the current operating environment, while Bernadette Madarieta, CFO, will provide details on financial results and outlook. The company's fourth quarter and full year results were disappointing due to executional challenges and soft global demand for fries.

The company's fourth quarter results were disappointing due to investments in price, product withdrawal, market share losses, unfavorable mix, and weaker restaurant traffic. The leadership team takes responsibility for these results and acknowledges the need to improve execution. Despite challenges, the company remains confident in the potential of the frozen potatoes market and has taken steps to strengthen its position, such as integrating an acquisition, opening new processing facilities, and implementing pricing actions. However, the operating environment has become more challenging, with declining restaurant traffic and frozen potato demand.

Due to an increase in industry capacity in North America and Europe, the company expects a supply/demand imbalance to continue through fiscal 2025. They are making operating adjustments to improve execution and competitiveness, such as focusing on volume growth and leveraging limited time offerings and innovation. They also plan to invest in price and trade support to protect share and win new business, reduce costs, and modernize production capabilities. As a result, their sales growth will be volume-driven rather than price-driven, and their earnings will be driven by a combination of volume growth, improved mix, and cost savings. The company's expectation for volume growth is dependent on an improvement in restaurant traffic trends.

U.S. restaurant traffic has decreased due to menu price inflation, with QSR chains specializing in hamburgers experiencing a 4% decline in traffic. However, these chains have increased promotional activities to drive traffic. In international markets, traffic trends were consistent with the previous quarter. Fry attachment rates remained steady in the U.S., Europe, Japan, and China. The pressure on restaurant traffic and demand is believed to be temporary and the global fry category is expected to return to its historical growth rate as consumers adjust to higher menu prices.

The company is taking a cautious approach to the consumer market and does not anticipate any changes in current trends for fiscal 2025. The early potato crop in North America is consistent with historical averages, but the impact of the recent heat wave is still unknown. In North America, the company has agreed to a 3% decrease in contract prices for the 2024 potato crop. In Europe, heavy rainfall has delayed the completion of planting and the futures index for processing potatoes has increased. The company's exposure to higher market prices is less due to fixed price contracts, but potato costs in Europe are still expected to increase. More details will be provided in the first quarter results in October. Overall, the company believes it has a strong foundation to support customers and improve financial performance.

In the sixth paragraph, the speaker discusses their long-term plans for the business and their cautious outlook for the current year. They mention positive actions being taken by chain restaurants and traffic trends in international markets, but also express concerns about the potato crop in Europe. The speaker then hands over the discussion to Bernadette, who provides a more detailed review of the company's fourth quarter results. Sales and earnings fell short of targets, with volume declining due to share losses and the decision to exit certain business. The decline was slightly higher than anticipated, partly due to higher share losses and temporary issues with the ERP transition.

In the third quarter, the 8-point volume decline was due to a 1-point loss from a product withdrawal and 2 points from soft restaurant traffic. Price/mix increased by 3%, but was lower than expected due to increased demand for value-based products and investments in pricing. Adjusted gross profit declined by $72 million, with $40 million from the product withdrawal and the rest from lower volume and increased depreciation expenses. Gross margin was 23%, below the target of 27%, mainly due to the product withdrawal and share losses of higher-priced customers. Adjusted SG&A decreased by $6 million, with lower performance-based compensation expenses offsetting higher IT investments.

In the fourth quarter, the company invested more in advertising and promotion for their retail products in EMEA and saw a $6 million increase in noncash amortization related to their new ERP system. SG&A was $20 million below their target due to cost savings efforts. Adjusted EBITDA was $283 million, down $50 million from the prior year, with about half of the decline due to a voluntary product withdrawal and the other half due to targeted investments in price and trade support, unfavorable mix, and lower-than-expected volume. In the North America segment, sales declined 4% due to a 7% decrease in volume, partially offset by a 3% increase in price/mix. Adjusted EBITDA for the segment declined 7% to $277 million, primarily due to a charge related to the voluntary product withdrawal.

The paragraph discusses the factors that contributed to a decline in sales and adjusted EBITDA in the International segment, including lower sales volumes, unfavorable mix, and higher costs. The decline was also influenced by strategic business exits and a voluntary product withdrawal. However, the company's balance sheet remains strong and they have ample liquidity, with $1.2 billion available for a new credit facility. They also generated $800 million in cash from operations for the year.

In fiscal year 2025, the company plans to make strategic investments in modernizing assets and supporting customer needs. They spent $990 million on capital expenditures, with ongoing expansion projects and a new ERP system. They also returned $384 million to shareholders through dividends and share repurchases. The operating environment is expected to be challenging, with soft restaurant traffic and fry demand, resulting in higher industry capacity. The company plans to make targeted investments in price and trade to support volume growth and share. They are also focusing on supply chain productivity and reducing operating expenses. They are targeting sales of $6.6 billion to $6.8 billion, with expected growth of 2% to 5% driven by volume.

The company expects a decline in volume during the first half of the year due to share losses and soft demand in the restaurant industry. However, they anticipate an increase in volume in the second half of the year due to customer contract wins and recapturing lost market share. They do not expect a significant contribution from price/mix in fiscal year 2025 and will focus on driving volume and share growth through targeted investments in price and trade support. In terms of earnings, they expect adjusted EBITDA of $1.38 billion to $1.48 billion.

The company is targeting a diluted earnings per share of $4.35 to $4.85, which includes an adjusted SG&A target of $740 million to $750 million. This is an increase of $70 million from the previous year, due to returning performance-based compensation and investments in advertising and promotions. Excluding these items, adjusted SG&A expenses are down due to cost management efforts. The company is also targeting a total depreciation and amortization expense of $375 million, with a significant portion related to capacity expansions in China, Idaho, and the Netherlands. Interest expense is expected to increase by $45 million due to higher debt levels. The full year effective tax rate is forecasted to be 24%, and the company plans to use $850 million for capital expenditures, primarily for capacity expansion efforts in the Netherlands and Argentina. The company is also considering rephasing future capital investments to better match demand.

The company's capital expenditures for the year are mostly committed, but there will be a decrease in fiscal 2026. The fiscal 2025 outlook suggests a growth rate of 0% to 3%, below the long-term algorithm. Adjusted EBITDA target for fiscal 2025 is $160 million, reflecting investments and challenges in certain markets. The first quarter is expected to see a decline in sales and volume due to share losses, soft restaurant traffic, and a voluntary product withdrawal, but the impact is expected to ease as the year progresses.

In the paragraph, the speaker discusses their expectations for the company's pricing and earnings in the upcoming fiscal year. They anticipate a decrease in price mix due to pricing actions taken in the previous year, but this will be offset by unfavorable mix and investments in price and trade support. They also mention a loss associated with a voluntary product withdrawal in the first quarter, but do not expect further losses. The speaker then turns it over to another speaker for closing comments, emphasizing their confidence in the company's long-term growth outlook despite current market challenges. The company is focused on managing costs, evaluating their manufacturing network, and modernizing production assets to support customers and create value for shareholders. The call ends with a Q&A session.

Bernadette Madarieta, from Lamb Weston, responded to a question about the company's capacity utilization rate. She stated that they are not currently providing a specific number, but they have two new facilities that are becoming operational and will have available capacity. They are also working to ramp up their China and American Falls plants. However, the current demand environment may stretch out this process. Madarieta also mentioned that the company has experienced share losses with some higher-margin customers during their ERP transition, but they are actively working to regain those customers. Tom Werner added that the company is also facing a deceleration of restaurant traffic, which is impacting their QSRs (quick-service restaurants) and French fry consumption.

The company is facing challenges with contracting due to softness in their customer base. They are making pricing concessions and targeted investments to regain lost customers, especially independent restaurants. The industry is also facing challenges with restaurant traffic and capacity availability. The company is working to regain the trust of these customers and expects the market to eventually balance out.

The management team is being cautious and evaluating various strategies to manage costs due to the current operating conditions and expectations for the next year. They are not commenting on specific plans, but are considering all aspects of the company. Some analysts are questioning if the team is being more conservative than usual in their outlook for 2025.

Tom Werner, CEO of a company, is discussing their cautious guidance for the future due to the prolonged decline in restaurant traffic. He mentions that the company has taken a cautious view in their guidance for the next year and that they will have a clearer view on the return of restaurant traffic in the next couple of quarters. He also discusses a voluntary product withdrawal that had a significant financial impact on the company but was the right decision to maintain their values and respond to customers. He does not provide specific details about the customer or the adjustments made internally.

The company has made adjustments to their organization to maintain the integrity of their product quality. The issue that affected Q4 and Q1 was identified soon after the end of the fourth quarter. The company has historically not had to reinvest in pricing, but due to the current operating environment and share losses, they are making targeted investments in price to regain their share.

The company believes that the current low traffic trends and increased supply in the restaurant industry will eventually balance out as the category returns to growth. They are managing the current operating environment and have confidence in the long-term outlook. 80% of their capital expenditures are already committed, but they are evaluating overall capacity and will continue to invest for the long term.

Tom Palmer asked a question about the company's guidance for the year, specifically regarding the expected volume growth and market share gains in the second half of the year. He wanted to know how much of these share gains have already been secured by recent customer contract wins and what other factors besides pricing will drive these gains. Bernadette Madarieta responded that some of the share gains have already been committed and will be seen in the second half of the year.

The company is currently in negotiations with potential partners and is expecting to gain market share. They have a strong sales pipeline and are targeting higher mix customers. They contract their potato crop based on their forecasted volume and will manage it accordingly. They will provide an updated view of the crop in the first quarter.

The speaker is discussing the company's recent strategic product exits and capacity investments, and how they are now going after lower margin business. They also mention being more flexible in their approach to capacity needs and making price investments in the current market environment. They state that they will continue to assess their portfolio and make decisions based on their sales pipeline. When asked about potentially idling or closing older processing facilities, the speaker says they are phasing investments out further and focusing on new capacity coming on.

The speaker has made adjustments to the company in response to a decrease in traffic. They are evaluating all areas of the company and considering how to adjust asset utilization rates. The International segment has lower margins due to a product withdrawal and competitive market conditions. They will try to pass on any price inflation from the poor crop in Europe through fixed pricing.

The speaker is trying to reconcile the forecasted increase in volume with the challenging market environment and recent market share losses. They suggest that the losses may be due to a combination of customer service issues and competitors offering better prices. The company has a pipeline of opportunities to regain volume, but the first half of the fiscal year is expected to see a decline due to these losses. The speaker remains confident in the company's ability to navigate through the challenges and expects improvement in the second half. The question is then raised about the price and trade investment going into the market.

The speaker asks about one-off investments and customer promotions in price negotiations, but the company declines to provide specifics. They mention a decline in traffic in May and June, but no significant changes overall. They also mention recent promotional activity but have not seen any data yet. The speaker also asks about the timing of the company's stock repurchase.

The speaker, Bernadette Madarieta, confirms that share repurchases are evaluated throughout the year and decisions will continue to be made as the stock price remains low. When asked about the competitive environment in the international market, Madarieta declines to comment on competitors but states that Lamb Weston is reacting to the market. Regarding a product withdrawal, the company is back to shipping to the customer. In response to a question about restaurant traffic, Madarieta suggests that it will likely remain weak in the first half of the year.

The speaker, Bernadette Madarieta, confirms that in the second half of the year, they are expecting restaurant traffic to no longer decline on a year-over-year basis. The previous trend of declining traffic is expected to continue in the first half of the year, with slight improvement in the second half. The moderator, Max Gumport, thanks the speaker and ends the Q&A session. The moderator, Dexter Congbalay, thanks everyone for joining the call and invites anyone interested in a follow-up call to email him. The operator concludes the call.

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