The first paragraph of the article discusses the Lamb Weston First Quarter Fiscal Year 2025 earnings call. Dexter Congbalay introduces the call, mentioning that the earnings press release is available on their website and that the remarks will include forward-looking statements. These statements are subject to risks and uncertainties, detailed in their SEC filings. The call will also include non-GAAP financial measures, with reconciliations in the earnings release. Tom Werner, the CEO, will provide an overview of their operating environment and cost reduction actions. CFO Bernadette Madarieta will discuss the financial results and the updated fiscal 2025 outlook. Tom Werner notes that their financial results for the first quarter met expectations, with sales surpassing targets due to favorable volume and price mix.

In the second paragraph, the article discusses the company's efforts to regain customer share and win new business, highlighting solid international performance and slight improvements in restaurant traffic trends. While inflation-driven pricing in key markets boosted price mix, the adjusted EBITDA exceeded targets despite higher manufacturing costs. Although encouraged by first-quarter performance, challenges in frozen potato demand and global restaurant traffic are expected to persist through fiscal 2025. U.S. restaurant traffic improved slightly but remained negative, with a 2% decline compared to the previous year. QSR traffic, particularly in hamburger chains, showed sequential improvement, supported by increased promotional activity. However, consumer tendencies to trade down from medium to small fries due to promotional deals pose a challenge to volume growth.

In the first quarter, international restaurant traffic was softer compared to the fiscal 2024 fourth quarter. The UK experienced a 3% decline in traffic, worsening from a 2% decline. Germany also saw a 3% drop, while France and Italy's traffic rose at slower rates, and Spain's traffic remained flat. In contrast, traffic in China and Japan increased. Despite these trends, fry attachment rates remained steady globally, supporting confidence in the fry category's long-term growth as traffic rates improve. The supply-demand imbalance due to traffic decline is expected to persist through fiscal 2025. The company successfully retained and gained new chain restaurant customers, especially internationally, with competitive pricing aligned with expectations. Significant volume from new customers is anticipated in the fiscal third quarter.

The paragraph discusses the company's strategy to improve its operations and financial performance. It focuses on leveraging direct sales to acquire and regain smaller and regional U.S. customers while acknowledging competitive pricing similar to expectations. The company is implementing a restructuring plan to reduce costs, which includes closing the high-cost Connell, Washington facility, temporarily curtailing production across North America, and shifting investments to modernize production. These actions aim to enhance capacity utilization, reduce capital expenditures, and improve cash flow. Additionally, they are reducing global headcount by approximately 4% and eliminating certain unfilled positions across various segments and corporate functions.

The paragraph discusses the company's restructuring plan, including anticipated cost savings and associated charges, to improve efficiency and competitiveness. It highlights the current potato harvest, noting slight increases above historical averages in North America and average levels in Europe due to better late-growing conditions. There is a 3% decrease in contracted potato prices in North America, expected to benefit the company in the fiscal third quarter, while European potato costs are expected to rise due to contract price increases. The final crop assessment will be provided with the second-quarter results in January. The company's first-quarter results met expectations through improved volume, pricing, and cost management.

The paragraph discusses the company's recent financial performance and strategic responses to challenges in restaurant traffic and consumer demand for frozen potatoes. Despite a 1% sales decline compared to the same period last year, results were better than expected due to improved volume and price mix. Volume decreased by 3%, mainly due to past customer losses in North America, exiting low-margin businesses in Europe, and soft U.S. restaurant traffic, along with a product withdrawal from fiscal 2024. However, international market growth offset some declines. Price mix rose by 2% due to inflation-driven price actions in Europe and North America. The gains were moderated by unfavorable channel and product mix and investments in price and trade. The company has announced a restructuring plan to boost efficiency and cash flow amid these challenges, while expecting a slightly above-average potato crop in North America and average yields in Europe. Bernadette Madarieta provides more details on financial results, the restructuring plan, and the fiscal 2025 outlook.

The paragraph discusses a decline in adjusted gross profit by $137 million to $353 million, primarily due to three factors: a $39 million loss from a voluntary product withdrawal, $15 million from increased depreciation expenses related to previous capacity expansions, and higher manufacturing costs influenced by input cost inflation and lower factory utilization rates. These factors more than offset benefits from pricing actions, resulting in a gross margin of 21.5%, below the target range. Additionally, adjusted SG&A expenses rose by $6 million due to amortization from a new ERP system. The paragraph concludes with an adjusted EBITDA of $290 million, which, although better than guidance, reflects a decline due to higher manufacturing costs and the product withdrawal impact.

In the North America segment, sales fell by 3% compared to the previous year, driven by a 4% volume decline due to losses in smaller and regional customer markets and reduced U.S. restaurant traffic, partially offset by retail growth. Despite a 1% increase in price mix from inflation-driven pricing actions, unfavorable channel/product mix and price investments led to a $103 million decline in segment-adjusted EBITDA, also impacted by a $21 million voluntary product withdrawal charge. In the international segment, sales rose by 4%, with a 5% price mix increase countering a 1% volume decline from exiting lower-margin EMEA businesses and the product withdrawal. This led to a $39 million decline in international segment-adjusted EBITDA, with the withdrawal accounting for about half of the reduction. Growth in key international markets outside of EMEA cushioned the volume decline.

In the first quarter, the company managed its finances by maintaining a strong balance sheet with $120 million in cash and $1 billion available under a credit facility. Net debt stood at $3.9 billion, and liquidity was improved by a $500 million term loan. Operating cash flow matched the previous year at $330 million, aided by working capital changes, despite lower earnings. Capital expenditures were significant at $335 million, focusing on expansions in Idaho, the Netherlands, and Argentina. The company returned $133 million to shareholders, including $52 million in dividends and repurchasing shares worth $82 million. Future expectations include further working capital improvements as part of a restructuring plan to adapt to business trends.

The paragraph discusses strategic actions by a company to optimize asset utilization and reduce costs, including a 4% global headcount reduction and the elimination of certain job positions. These measures are estimated to save $55 million in fiscal 2025, benefiting cost of sales and SG&A expenses, and $85 million annually by fiscal 2026. The restructuring will involve a $200 million to $250 million pre-tax charge, mostly in the second quarter, with 20% being non-cash charges from asset depreciation, and 80% cash charges related to unused raw materials, facility closures, and severance costs. The company has also revised its capital expenditure plans for fiscal 2025 to $750 million, a $100 million decrease, by deferring certain projects, including the next phase of its ERP system and modernization initiatives, due to the current operating environment.

The next phase of the ERP implementation has been postponed, as the company focuses on completing strategic projects in the Netherlands and Argentina. For next year, capital expenditures are expected to decrease significantly, with strategic expansion projects finishing by fiscal year-end. In fiscal 2026, base capital and modernization expenditures should align with depreciation and amortization expenses. Additionally, $150 million is earmarked for environmental projects, with an estimated $500 million needed over five years to comply with environmental regulations. Options to reduce these costs, including government incentives, are being explored. Fiscal 2026 may also see renewed ERP investments. Specific capital spending targets will be announced in July with the fiscal 2026 outlook. For fiscal 2025, the company targets net sales of $6.6 to $6.8 billion, a 2% to 5% growth driven by volume, and expects adjusted EBITDA at the lower end of the $1.38 to $1.48 billion range.

The paragraph discusses the company's financial adjustments in response to increased manufacturing costs and an unfavorable product mix, which are impacting gross margins. To counteract these pressures, the company plans to implement a restructuring plan to achieve $55 million in savings and manage costs aggressively. Key updates to financial targets include lowering the adjusted SG&A target, raising interest expense estimates, and increasing the effective tax rate due to a higher proportion of international income. The adjusted diluted earnings per share target is reduced due to lower expected EBITDA, updated interest expense, and tax rate. The overall strategy aims to maintain profitability and cash flow while continuing strategic investments. Tom Werner thanks the team for their efforts in achieving first-quarter results and focusing on short-term priorities amidst the challenging environment.

In the paragraph, Andrew Lazar from Barclays questions Tom Werner about unexpected positive pricing outcomes in North America, despite projections of a decline. Tom explains that the contracting season met expectations, with favorable factors like an improved mix and carryover from the previous year contributing to the positive results. He emphasizes that the pricing environment was stable and in line with expectations, expressing optimism about sustaining this stability moving forward.

In the paragraph, Tom Werner, a representative from Lamb Weston, discusses their response to current challenges in the restaurant industry, particularly reduced traffic. He highlights that the company is taking decisive steps to manage their operations in light of these challenges, while noting he has no specific insights into the actions of their competitors. Werner mentions that Lamb Weston is making strategic decisions independent of other North American players, who will manage their own businesses as they see fit. He acknowledges capacity announcements in the industry but emphasizes his focus on navigating the current fiscal year's difficulties.

The paragraph discusses a conversation between Ken Goldman from JPMorgan and Bernadette Madarieta regarding a $500 million investment for environmental improvements, primarily wastewater capital investments, at manufacturing plants. Bernadette explains that the timeline for these investments varies based on regulatory requirements, and the company will seek potential government incentives to reduce costs. Additionally, Ken asks about the decision to temporarily delay the ERP implementation. Bernadette acknowledges delays due to current business complexities and states they will minimize impact and provide updates when possible.

The paragraph features a discussion primarily by Bernadette Madarieta, with interjections from others, regarding the impact of an ERP system implementation on financial targets and gross margins. Madarieta explains that after an ERP release, the company paused further implementation to focus on business stabilization, causing delays in anticipated benefits. However, they expect to resume and gain benefits once capital spending and major expansions are completed by year-end, without major impact on future guidance. Adam Samuelson then questions about the updated gross margin expectations for the year in light of a larger-than-expected product recall and higher manufacturing costs due to production curtailments. Madarieta is asked to provide context on these issues, including differences between North American and international operations and potential impacts on the phasing of margins and earnings.

The paragraph discusses the impact of higher manufacturing costs, primarily due to fixed cost deleveraging from idle production lines and an unfavorable channel mix of segments. The company plans to offset these costs with $55 million in savings and by modernizing its assets, such as at the American Falls plant, to achieve a more flexible and lower-cost manufacturing footprint. As some plants have differing capabilities, certain capacity will remain idle. Although gross margins will be impacted due to fixed cost deleveraging, improvements are expected as volumes increase. Adam Samuelson inquires about a cost-saving target of $85 million for 2026 and if this is in addition to $50 million for the current year, suggesting a $35 million year-on-year benefit. He also questions the total CapEx allocation, which includes a base CapEx equaling depreciation and amortization, projected at $375 million, and an additional $150 million for environmental CapEx next year, as facilities in the Netherlands and Argentina begin depreciating.

In the conversation, Bernadette Madarieta and Adam Samuelson discuss financial projections for the upcoming year, including $85 million in savings, with $30 million incremental savings expected next year. They anticipate $400 million in depreciation and amortization expenses, partly due to new plants coming online. Capital expenditures are projected to be around $550 million, with $150 million allocated for environmental purposes. Potential additional expenditures may arise with the next ERP phase. Peter Galbo asks about the impact of idling production lines on gross margins, querying whether margins would remain lower if demand doesn't improve and lines stay down. Tom Werner acknowledges the challenge of fixed cost de-leverage, suggesting they have measures to further mitigate it beyond the $30 million savings.

The paragraph involves a discussion about strategies to address current operating challenges in the restaurant industry. Tom emphasizes that the measures being taken are in response to short-term issues, with an expectation that restaurant traffic will eventually rebound, leading to growth in the sector. The company is modernizing its assets across various locations, suggesting confidence in its future positioning once the market recovers. Peter Galbo seeks clarification on SG&A reductions, with Bernadette Madarieta explaining that most of the reductions pertain to people-related costs. The operator then moves to the next question from Tom Palmer at Citi.

The paragraph is a transcript of a discussion between Tom Palmer, Bernadette Madarieta, and Robert Moskow regarding the company's sales growth composition and the impact of fixed costs on profitability. The expectation remains that sales growth will be driven by volume, not price mix. The permanent capacity curtailment at Connell has been beneficial, but temporarily curtailed lines are causing deleveraging due to fixed costs being spread over reduced volume. The company is also working to reduce high inventory levels. Robert Moskow inquires whether pricing will be negative in North America for the rest of the year due to the need to offer incentives to food service customers post-ERP disruption.

In the paragraph, Tom Werner discusses the current pricing environment, noting it aligns with their expectations for the year. The company is managing pricing on a detailed, account-by-account basis within the food service channel. Larger pricing agreements are mostly finalized, and future pricing will continue to be managed on an individual account level. Bernadette Madarieta adds that while the pricing environment is competitive, their pricing strategy remains disciplined and on-track. They anticipate greater pricing investment throughout the year, which may result in a negative price mix. Robert Moskow questions if current capacity reductions will balance supply and demand if future demand remains unchanged, seeking insight into future utilization rates.

The paragraph discusses the impact of industry challenges on Lamb Weston and the broader restaurant sector, focusing on the pressures faced due to restaurant traffic trends and supply-demand balance. Tom Werner mentions that Lamb Weston and the industry are monitoring traffic closely to determine future actions. Rob Dickerson from Jefferies questions about share loss resulting from an ERP disruption, noting some improvement over recent quarters. Tom Werner responds by acknowledging business wins expected to show positive results in Q3 and Q4 of the fiscal year but notes that challenges in restaurant traffic are causing volume declines in key accounts.

The paragraph discusses a business update where the company is monitoring restaurant traffic and its impact on base accounts in the latter half of the year. It mentions winning back customers despite uncertainties. Rob Dickerson asks about the plant closure's impact on North American capacity, which Bernadette Madarieta estimates at 5% or 300 million pounds. Marc Torrente from Wells Fargo inquires about the Connell facility closure and its manufacturing costs. Tom Werner explains that the decision was made after evaluating production capabilities, costs, and future capital needs, emphasizing it was a tough but necessary choice for the company's long-term strategy.

In the paragraph, Bernadette Madarieta discusses the company's international business, highlighting strong growth in the Asia Pacific and Latin America regions, driven in part by new plant production coming online next spring. Customer wins in the international segment are expected to positively impact the third quarter. Later in the discussion, Matt Smith inquires about pricing strategy, noting that although pricing investments align with expectations, there are higher investments in price and trade than anticipated. Madarieta confirms that pricing increases, primarily cost-based, began in the first quarter, with more significant investments expected starting in the second quarter.

In this conversation, Carla Casella from JPMorgan asks about the breakdown of $200 million to $250 million in charges and whether the non-cash portion mainly concerns the potato inventory write-down. Bernadette Madarieta explains that the non-cash part primarily involves accelerated depreciation of the Connell facility, while most cash costs pertain to payments for contracted yet unneeded potatoes due to production curtailments. Carla then questions whether these developments will influence future supplier negotiations or contract pricing. Tom Werner clarifies that while negotiations are ongoing, they're not expecting procedural changes. However, he refrains from discussing specific pricing implications.

In the paragraph, Bernadette Madarieta confirms that there are no changes to the current leverage target, which remains at 3.5x, although they are currently at 3x. She expresses comfort with this level as it offers flexibility. Carla Casella acknowledges this information and thanks Bernadette. The operator then concludes the question-and-answer session, and Dexter Congbalay thanks participants, offering to arrange follow-up calls. The operator wraps up the call, expressing appreciation for participation.

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