Lamb Weston reported a solid third quarter to FY2025 with a 9% volume increase alongside a 4% lift in net sales, driven by ERP-transition effects, contract wins, and ongoing share gains across North America and international markets. Adjusted EBITDA rose 6% to $364 million, but gross margin declined modestly as price/mix and higher transport/warehouse costs offset some of the operating leverage. Management attributes the performance to the end-to-end value-creation program, including more than 30 initiatives, and reiterated a commitment to deliver at least $55 million of pretax savings in FY2025 and $85 million in FY2026. The company also signaled a disciplined approach to capacity and working capital through line curtailments and ongoing capital projects, while guiding to modest revenue growth and continued margin headwinds in the near term.
Key takeaways for investors include: (1) a credible turnaround trajectory aided by cost containment, productivity gains, and a broadened customer base; (2) a leverage and liquidity position that supports ongoing shareholder returns and capital expenditure, albeit with elevated debt levels; and (3) a cautious near-term margin pathway driven by fixed-cost absorption as production scales and inventories normalize, with a path to potential margin expansion as ERP benefits fully materialize and the value-creation program accelerates.
Key Performance Indicators
Revenue
1.52B
QoQ: -5.02% | YoY:4.27%
Gross Profit
422.50M
27.79% margin
QoQ: 52.09% | YoY:4.66%
Operating Income
248.70M
QoQ: 1 244.32% | YoY:11.08%
Net Income
146.00M
QoQ: 504.43% | YoY:-0.07%
EPS
1.03
QoQ: 512.00% | YoY:1.98%
Revenue Trend
Margin Analysis
Key Insights
Third quarter revenue: $1.5205 billion; gross profit $422.5 million; gross margin 27.8%; operating income $248.7 million; EBITDA $350.9 million; net income $146.0 million; diluted EPS $1.03.
YoY and QoQ: Revenue YoY +4.27%, QoQ -5.02%; Gross profit YoY +4.66%, QoQ +52.09%; Operating income YoY +11.08%, QoQ +1,244.32%; Net income YoY -0.07%, QoQ +504.43%; EPS YoY +1.98%, QoQ +512.00%.
North America net sales +4% YoY; volume +8% YoY; price/mix down 4% YoY.
International net sales +5% YoY; volume +12% YoY; price/mix down ~7% YoY (constant currency ~4% decline).
Adjusted EBITDA: North America $301 million (+$15 million YoY), International $93 million (-$8.5 million YoY).
Financial Highlights
1) Revenue and profitability snapshot
- Third quarter revenue: $1.5205 billion; gross profit $422.5 million; gross margin 27.8%; operating income $248.7 million; EBITDA $350.9 million; net income $146.0 million; diluted EPS $1.03.
- YoY and QoQ: Revenue YoY +4.27%, QoQ -5.02%; Gross profit YoY +4.66%, QoQ +52.09%; Operating income YoY +11.08%, QoQ +1,244.32%; Net income YoY -0.07%, QoQ +504.43%; EPS YoY +1.98%, QoQ +512.00%.
2) Segment and margin dynamics
- North America net sales +4% YoY; volume +8% YoY; price/mix down 4% YoY.
- International net sales +5% YoY; volume +12% YoY; price/mix down ~7% YoY (constant currency ~4% decline).
- Adjusted EBITDA: North America $301 million (+$15 million YoY), International $93 million (-$8.5 million YoY).
- Overall adjusted gross profit rose sequentially but was offset by higher transportation and warehousing costs and a higher depreciation charge reflecting capacity expansion investments.
3) Balance sheet and liquidity
- Cash and equivalents: $68 million; total liquidity ~ $1.1 billion including revolver availability. Net debt: ~$4.20 billion; trailing-twelve-month leverage ~3.4x.
- Total assets $7.4228 billion; total liabilities $5.7892 billion; stockholders’ equity $1.6336 billion.
- Working capital and capex: capex YTD ~$563 million; full-year 2025 capex target $750 million; guidance indicates continued working-capital optimization.
4) Cash flow and capital allocation
- Operating cash flow (nine months) ~$485 million; Q3 net cash from operating activities ~$56 million; free cash flow for the quarter was negative $19.8 million.
- Free cash flow impact driven by working-capital needs during ERP execution and ongoing inventory build; plan to reduce working capital via line curtailments and downtime.
- Shareholder returns: $151 million returned in the quarter (including a $100 million buyback); $51 million in cash dividends; ~ $458 million remaining under the buyback authorization.
5) Guidance and outlook
- FY2025 revenue target: $6.35–$6.45 billion; adjusted EBITDA target: $1.17–$1.21 billion.
- Expectation of a mid-to-high single-digit increase in international volume; North America volume to slightly decline; price/mix down low-to-mid single digits overall.
- Anticipated gross margin decline of ~700 basis points year-over-year in the fourth quarter, driven by seasonal fixed-cost absorption and higher factory burden from curtailed lines; SG&A guidance lowered to $665–$675 million for the full year; tax rate target ~28% (excluding comparability items).
- Tariff impact not baked into the outlook; company emphasizes local/regional supply and yet-to-be-assessed tariff effects on exports and certain inputs.
Overall analysts should view the QQ3 2025 results as a material progress milestone in a broader transformation agenda, with evidence of volume recovery and select contract wins supporting a path to margin stabilization and potential expansion as the value-creation program matures and ERP-related efficiencies fully amortize.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.52B
4.27%
-5.02%
Gross Profit
422.50M
4.66%
52.09%
Operating Income
248.70M
11.08%
1 244.32%
Net Income
146.00M
-0.07%
504.43%
EPS
1.03
1.98%
512.00%
Key Financial Ratios
currentRatio
1.35
grossProfitMargin
27.8%
operatingProfitMargin
16.4%
netProfitMargin
9.6%
returnOnAssets
1.97%
returnOnEquity
8.94%
debtEquityRatio
2.61
operatingCashFlowPerShare
$0.4
freeCashFlowPerShare
$-0.14
dividendPayoutRatio
35.2%
priceToBookRatio
4.54
priceEarningsRatio
12.71
Net Income vs. Revenue
Expense Breakdown
Management Commentary
The earnings call highlighted a formal pivot toward a value-creation plan led by AlixPartners, with management signaling that 'everything is on the table' to improve profitability and growth. Key themes from management include:
- Strategy and operational transformation: Mike Smith stated, 'Everything is on the table, and we are moving with urgency,' underscoring the enterprise-wide focus on optimizing supply chain, manufacturing throughput, and cost structure. He also noted 'over 30 projects underway this fiscal year' and the aim to deliver at least $55 million pretax savings in FY2025 and $85 million in FY2026.
- Customer engagement and channel strategy: The team emphasized improving customer relationships, securing new wins, and expanding share across channels. Bernadette Madarieta highlighted that, despite softer traffic, the company remains on track to meet FY2025 outlook, with volume gains from new contract wins offset by weaker restaurant traffic.
- Near-term inflation and pricing dynamics: Executives called out a mix of external headwinds (soft QSR traffic, currency effects) and internal pricing investments in a competitive market, with price/mix expected to be down low-to-mid single digits in both NA and International segments in the near term.
- Tariffs and policy: Management did not incorporate tariff changes into the current guidance, noting potential impact on US imports and exports and the need to monitor evolving policy during contract negotiations.
- Valuation and capital allocation stance: Mike referenced the value-creation plan as a balance of cost reductions, growth initiatives, and working capital improvements; he emphasized disciplined capital allocation and potential adjustments to leverage given the near-term uncertainties.
Representative quotes (attribution):
- 'Everything is on the table, and we are moving with urgency.' — Mike Smith
- 'We have over 30 projects underway this fiscal year and will deliver quick wins as part of a savings pipeline across multiple years.' — Mike Smith
- 'We remain on track to meet our full year fiscal 2025 outlook.' — Bernadette Madarieta
- 'We are laser-focused on our customers, delivering quality products and optimizing our cost structure and operations to improve profitability.' — Mike Smith
'Everything is on the table, and we are moving with urgency.'
— Mike Smith
'We have over 30 projects underway this fiscal year and will deliver quick wins as part of a savings pipeline across multiple years.'
— Mike Smith
Forward Guidance
Quantitative targets remain anchored to the company’s FY2025 plan while acknowledging near-term margin pressures from fixed-cost absorption and ongoing price investments. Key points include:
- Revenue: FY2025 revenue guidance of $6.35–$6.45 billion, implying roughly flat to modest growth on a full-year basis.
- EBITDA: FY2025 adjusted EBITDA guidance of $1.17–$1.21 billion, signaling a material operating leverage gain from volume and cost actions offset by price investments and higher cost per pound due to plant downtime.
- Margin trajectory: Expectation of a ~700 bps decline in adjusted gross margin year-over-year for 4Q, driven by seasonal fixed-cost absorption and curtailed-line production; future margins hinge on inventory normalization and continued productivity gains.
- SG&A and tax: Adjusted SG&A guidance of $665–$675 million for FY25; tax rate target around 28% (excluding comparability items).
- Capex and cash flow: FY25 capex target of $750 million; ongoing emphasis on working-capital optimization; potential timing shifts depending on Argentina-related projects.
Assessment: The outlook remains conservative in the near term due to macro headwinds and inventory dynamics, but the value-creation plan provides a credible path to EBITDA uplift and margin stabilization. Investors should monitor: (i) progress on the AlixPartners-led plan and its impact on throughput, procurement, and SG&A; (ii) the pace of inventory reduction and working capital improvements; (iii) contract renewals and price realization in NA and International; (iv) tariff developments and their effect on input costs and international shipments; (v) capital deployment efficiency and share repurchases versus debt reduction.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LW Focus
27.79%
16.40%
8.94%
12.71%
ALLE
44.70%
22.20%
11.10%
18.22%
EVRG
56.70%
34.60%
13.70%
7.67%
FTV
60.00%
19.30%
2.10%
31.20%
IQV
35.40%
14.10%
4.09%
37.85%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
LW faces a transitional period as it completes ERP-related transitions and executes a broad value-creation program. Near-term profitability is pressured by fixed-cost absorption during inventory normalization and ongoing price investments, but the trajectory shows material upside potential as the program yields productivity gains, better throughputs, and improved working capital. The FY2025 EBITDA target of $1.17–$1.21 billion remains achievable, supported by volume gains in International and disciplined cost/SG&A management, though gross margins are expected to compress by roughly 700 basis points year-over-year in 4Q given seasonality and manufacturing load changes.
Valuation and risk considerations:
- The company guided to revenue of $6.35–$6.45B and EBITDA of $1.17–$1.21B for FY25, implying a mid- to high-single-digit EBITDA margin on average, with a sequential margin decline as seasonal burdens unwind.
- Leverage around 3.4x on trailing-12-months indicates credit flexibility but a heightened risk profile versus more-levered peers in defensible packaged foods with steadier cash flows.
- Investability hinges on successful execution of the AlixPartners program, containment of working-capital dynamics, and the resilience of demand in the NA and International markets amid evolving macro conditions.
Overall, the investment thesis centers on a reconstructive phase that can unlock meaningful margin and cash-flow improvements if the value-creation plan translates into sustained productivity, price realization, and inventory normalization. For risk-averse investors, wait for clearer evidence of margin stabilization and free cash flow normalization before upgrading to a more positive rating; for those with a turnaround bias, LW offers an identifiable path to earnings improvement as the transformation accelerates.
Key Investment Factors
Growth Potential
Growth potential hinges on (i) successful execution of the value-creation program (costs, throughput, working capital) and (ii) contract wins in North America and International, along with private-label/retail growth and new product introductions.
Profitability Risk
Key risks include sustained weaker consumer demand and restaurant foot traffic, input cost inflation (edible oils, packaging, labor), FX headwinds, higher fixed-cost absorption as production adjusts to lower near-term demand, and tariff policy developments that could affect margins and global supply.
Financial Position
Financial strength is supported by ~$1.1 billion liquidity and a trailing-12-month leverage of ~3.4x, with capex totaling $563 million through Q3 and a FY25 target of $750 million. The balance sheet shows net debt of ~$4.20 billion and total liabilities of ~$5.79 billion. The company maintains a disciplined approach to capital returns with $151 million returned in the quarter and room to opportunistically repurchase shares under the existing authorization.
SWOT Analysis
Strengths
Global scale and leadership in value-added frozen potato products
Diversified multi-channel distribution (Foodservice, Retail, Other) and a broad brand portfolio
Recent volume resurgence aided by ERP transition lapping and new customer wins
Active value-creation program with 30+ initiatives targeting cost, productivity, and working capital
Strategic investments in capacity expansion and manufacturing footprint optimization (Idaho, Netherlands)
Strengthened customer relationships and portfolio expansion (private label, licensed brands)
Weaknesses
Near-term margin headwinds from fixed-cost absorption during production curtailments
Significant leverage (net debt ~ $4.2B; ~3.4x on trailing-12 months)
ERP transition-related costs and higher logistics costs from elevated inventory
High reliance on food-away-from-home demand (QSR exposure) and sensitivity to macro traffic trends
Inventory overhang and working-capital intensity that can depress cash flow in the near term
Opportunities
Upside from AlixPartners-driven value creation across P&L (top line, gross margin, SG&A, working capital)
Continued contract wins and channel expansion (away-from-home to in-home/private label)
International growth via higher volume and pricing with FX resilience
Capacity optimization and supply-chain efficiency to improve throughput and reduce per-pound costs
Potential incremental capital returns as leverage stabilizes and cash flow improves
Threats
Macro consumer weakness and ongoing restaurant traffic declines (notably QSR)
Commodity price volatility (potatoes, edible oils, packaging) and currency fluctuation
Tariff policy changes affecting imports/exports and input costs
Competition and potential industry-capacity additions during a market downturn
Execution risk in large-scale cost-out and restructuring programs