Lamb Weston Holdings Inc (LW): Investor Discussion

On April 8, 2024, DeMatteo Research hosted a discussion on Lamb Weston (LW) and the frozen potato industry with eight investors. The group shared thoughts on the major Q3 '24 earnings miss, supply & demand dynamics, competition, pricing, volume & margin expectations, the normalized earnings power, valuation, and management credibility. There was a consensus among the group that the risk/reward setup is skewed to the upside following the significant sell-off, but there was debate over the normalized earnings power (i.e., whether to add back 2024 write-offs & ERP implementation costs), LW’s historical performance throughout cycles, and the company’s ability to execute going forward. 

Publicly traded companies mentioned herein: Archer-Daniels-Midland Co (ADM), Bunge Global SA (BG), Domino’s Pizza Inc (DPZ), Lamb Weston Holdings Inc (LW), McDonald’s Corp (MCD), Starbucks Corp (SBUX), Yum Brands Inc (YUM)

Volumes

An investor who was bullish prior to Q3 earnings is currently reassessing the company and finds it worrisome that management’s Q4 volume guidance decreased from a slight increase YoY to a MSD% decrease, noting that ~600bp delta is especially large in an industry without major volume volatility. He wonders how much of that is management “kitchen sinking” the quarter or if there are larger issues than expected. While he ultimately believes there is conservatism embedded in that guidance and models slightly better Q4 volumes, it is difficult to get excited over the very short term as there are a bevy of bearish theses that can’t be disproven until the next print. Two other participants seem even more concerned about volumes going forward; one points out that LW’s volumes have decreased in 4 of the past 5 years and DD% on a 4-year stack, while the other notes that channel checks suggest industry demand isn’t growing and questions the assumption of perpetual demand growth.