Lamb Weston Patiently Waiting For Reopening Surge
Lamb Weston (NYSE: LW) is among the very few consumer staples companies that have not had a fantastic post-COVID experience. The company, hampered by its exposure to restaurants and hospitality, saw its revenue drop sharply in the fiscal Q4 period of 2020
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4 min readThis story originally appeared on MarketBeat
Lamb Weston And The French Fry IndicatorLamb Weston (NYSE: LW) is among the very few consumer staples companies that have not had a fantastic post-COVID experience. The company, hampered by its exposure to restaurants and hospitality, saw its revenue drop sharply in the fiscal Q4 period of 2020 (calendar Q2) and the rebound has been less than stellar. Now, more than a year into the crisis, the company is still struggling with COVID-related issues but there is a light at the end of the tunnel. With vaccine use spreading, the outdoor dining season upon us, and economic reopening underway management is expecting volumes to begin increasing and we think their forecasts are too cautious. Americans love to eat out and we've been shuttered away far too long. When we feel safe getting out to the local diner, the burger joint, the pub, the parks, and vacation spots the restaurants need to be ready for business.
Lamb Weston, Slow Business But Not Bad BusinessLamb Weston's business in the Q3 period is down on a YOY basis but not bad, at least not in terms of making profits, paying the bills, delivering dividends to shareholders, and buying back stock. The $895.8 million in revenue is basically flat on a sequential basis but down -4.4% from last year and nearly 1000 basis points better than expected. The decline is driven by a -6.6% reduction in volume that was partially offset by higher prices. Moving down the report, the company saw a noticeable reduction in margin due to COVID-related supply chain issues that shaved 41% off of the bottom line. On a GAAP basis the $0.45 in earnings missed by $0.08 while the adjusted $0.45 missed by $0.06.
Looking forward, the company is expecting the rebound to begin accelerating in the fiscal 4th quarter and return to pre-COVID levels by the end of the calendar year. The quarter-to-date results are promising and suggest this forecast is cautious. Volume in the U.S. is already running at 90% of pre-COVID levels with the EU and International markets trailing but expected to catch up soon.
"We remain optimistic that overall demand in the U.S. will steadily return to pre-pandemic levels around the end of calendar 2021, and that global category growth will resume at historical rates soon thereafter. Our recently-announced investments to construct a new manufacturing facility in China, as well as the expansion of our chopped and formed product capacity in the U.S., underscore our confidence in the long-term health of the global category, as well as our strategy to support the growth of our customers as they continue to expand across our key markets,"