EPS of $0.89 decreased by 73.7% from previous year
Gross margin of 24.1%
Net income of 129.70M
"āOur sales and earnings performance fell well short of our targets due to a combination of targeted investments in price, a decision to voluntarily withdraw our product to ensure we meet our quality standards and more importantly, those of our customers.ā" - Tom Werner
Lamb Weston Holdings Inc (LW) QQ4 2024 Results Analysis: Revenue Pressure Amid Share Losses and ERP Transition; Capacity Expansions and Cost Actions Set the Stage for a VolumeāDriven 2025
Executive Summary
Lamb Weston reported a difficult Q4 2024, with revenue of $1.61 billion, gross margin of 23.0%, and adjusted EBITDA of $283 million (EBITDA margin ~18.6%). Net income was $129.7 million or $0.90 per share, down sharply yearāoverāyear on softer volume and mix, plus a $19ā$20 million impact from a voluntary product withdrawal that weighed on margins. Management attributed much of the quarterly shortfall to executional challenges, including share losses in a competitive, capacityāoversupplied environment and a delayed restaurant traffic rebound in North America and key international markets. On the bright side, Lamb Weston continued to execute a longāterm growth program (capacity expansions in China and Idaho, and ongoing Netherlands and Argentina projects) and is guiding for a volumeādriven recovery in fiscal 2025, aided by targeted price and trade investments, improving mix, and cost productivity. The company ended the year with solid cash generation ($316.7 million operating cash flow; $150.6 million free cash flow), a debt load of ~$3.75 billion, and net debt/Adjusted EBITDA of 2.7x, highlighting balance sheet strength even as nearāterm results remain pressured. Management projects a FY2025 revenue of $6.6ā$6.8 billion (0%ā3% normalized growth after ERP transition effects), Adjusted EBITDA of $1.38ā$1.48 billion, and diluted EPS of $4.35ā$4.85, underscoring a plan to restore sales momentum through volume, price/mix discipline, and efficiency gains.
Key Performance Indicators
Revenue
1.61B
QoQ: 10.53% | YoY:-4.90%
Gross Profit
387.90M
24.06% margin
QoQ: -3.91% | YoY:2.24%
Operating Income
212.50M
QoQ: -5.09% | YoY:13.64%
Net Income
129.70M
QoQ: -11.23% | YoY:-74.00%
EPS
0.90
QoQ: -10.89% | YoY:-73.68%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.6119B, down 4.9% YoY; QoQ up 10.5% (4Q vs prior year); volume ā8% and price/mix +3% in the quarter.
Gross profit: $387.9M; gross margin 23.0% (ā400 bps below target 27%); YoY gross profit +2.2% but QoQ fell due to lower volume and the product withdrawal.
Operating income: $212.5M; operating margin 13.2% (YoY up ~13.6% but below plan due to volume and mix pressures).
EBITDA: $299.3M; EBITDA margin 18.6% (down vs prior year; about half of the shortfall driven by the product withdrawal).
Net income: $129.7M; net margin 8.0%; EPS (GAAP) $0.90, diluted $0.89 (YoY EPS down ~73.7%).
Financial Highlights
Overview of Q4 2024 financials and key deltas:
- Revenue: $1.6119B, down 4.9% YoY; QoQ up 10.5% (4Q vs prior year); volume ā8% and price/mix +3% in the quarter.
- Gross profit: $387.9M; gross margin 23.0% (ā400 bps below target 27%); YoY gross profit +2.2% but QoQ fell due to lower volume and the product withdrawal.
- Operating income: $212.5M; operating margin 13.2% (YoY up ~13.6% but below plan due to volume and mix pressures).
- EBITDA: $299.3M; EBITDA margin 18.6% (down vs prior year; about half of the shortfall driven by the product withdrawal).
- Net income: $129.7M; net margin 8.0%; EPS (GAAP) $0.90, diluted $0.89 (YoY EPS down ~73.7%).
- Cash flow: Net cash provided by operating activities $316.7M; capex $166.1M in quarter; free cash flow $150.6M for the year; cash balance at period end $71.4M.
- Balance sheet liquidity and leverage: Net debt ~$3.75B; net debt/Adjusted EBITDA 2.7x; cash and revolver availability ~$1.2B; current ratio 1.29x; quick ratio 0.59x.
- Capital allocation: ~$384M returned to shareholders via dividends and buybacks; total capital expenditures ~$990M during the year (Net CAPEX higher vs prior year due to China/Idaho capacity expansions and ERP).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.61B
-4.90%
10.53%
Gross Profit
387.90M
2.24%
-3.91%
Operating Income
212.50M
13.64%
-5.09%
Net Income
129.70M
-74.00%
-11.23%
EPS
0.90
-73.68%
-10.89%
Key Financial Ratios
currentRatio
1.29
grossProfitMargin
24.1%
operatingProfitMargin
13.2%
netProfitMargin
8.05%
returnOnAssets
1.76%
returnOnEquity
7.25%
debtEquityRatio
2.15
operatingCashFlowPerShare
$2.19
freeCashFlowPerShare
$1.06
dividendPayoutRatio
40.1%
priceToBookRatio
7.2
priceEarningsRatio
24.81
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights from the Q4 2024 earnings call:
- Strategy and market outlook: Tom Werner stated, āOur sales growth will be largely volume-driven ā¦ targeted investments in price and trade support to protect share and win new business,ā underscoring a shift from price-led growth to volume recovery as the primary growth engine in fiscal 2025.
- Operational execution and ERP impact: Bernadette Madarieta noted that ERP transition issues in Q3 were temporary and contained, and that the volume decline in Q4 was partly due to share losses and the voluntary product withdrawal; management emphasized cost controls and productivity to offset higher input costs and the postāERP transition effects.
- Market dynamics and crop considerations: The discussion highlighted a mixed global restaurant traffic backdrop, with US QSR traffic down ~3% in 4Q and European/International markets largely stable to modestly positive, while crop cost exposure remains a function of European fixed-price contracts and North American crop contracts. Tom and Bernadette cautioned that 2025 volume could decline in H1 before recovering in H2 as ERP effects and lost share are lapped.
- Guidance framing and conservatism: Management stressed prudence in outlook given macro headwinds and a prolonged restaurant traffic softness, while maintaining confidence in the long-term growth of the frozen potato category and the effectiveness of the ongoing capacity expansions.
āOur sales and earnings performance fell well short of our targets due to a combination of targeted investments in price, a decision to voluntarily withdraw our product to ensure we meet our quality standards and more importantly, those of our customers.ā
ā Tom Werner
āWeāre aggressively looking at opportunities to reduce costs further by driving supply chain productivity and tightly managing operating expenses.ā
ā Tom Werner
Forward Guidance
Outlook and assessment: Lamb Weston guides for FY2025 sales of $6.6ā$6.8B (2%ā5% growth on a constant-currency basis, driven largely by volume) and adjusted EBITDA of $1.38ā$1.48B, with diluted EPS of $4.35ā$4.85. The company expects volume to be down in 1H25 due to share losses and soft restaurant traffic, with a rebound emerging in 2H25 as ERP and withdrawal impacts lapped and new contract wins take hold. Price/mix is expected to contribute little on a net basis in aggregate; North America price/mix is anticipated to decline as the company prioritizes volume and share gains, while international pricing may offset input cost inflation where contract terms allow. Capex is guided at ~$850M for 2025, with more than 80% of commitments already made, and depreciation & amortization guidance at $375M (about $50M related to ERP; remainder from capacity expansions). Tax rate ~24% and interest expense ~ $180M. Key risk factors include: ongoing restaurant traffic softness, crop cost volatility (especially Europe), execution risk from ERP, and the pace of regained share in North America. Monitoring points for investors include: pace of capacity utilization (new plants in China and Idaho ramping to run-rate over 18 months), the trajectory of U.S. and international restaurant traffic, the effectiveness of pricing and promotions in sustaining volume, and the progress of Netherlands/Argentina expansions toward completion by 2024ā2025. Overall, the 2025 plan hinges on a volumeāled recovery, disciplined capital allocation, and continued cost productivity improvements.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LW Focus
24.06%
13.20%
7.25%
24.81%
ALLE
42.90%
17.80%
9.00%
23.45%
EVRG
23.70%
15.20%
0.60%
51.69%
FTV
32.90%
32.80%
2.57%
24.38%
IQV
28.50%
14.30%
7.67%
22.44%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Lamb Weston enters FY2025 with a cautiously constructive longāterm outlook anchored by capacity expansions and a shift toward volumeādriven growth. The near term is characterized by continued earnings pressure from softer demand and the ERP transition, along with a one-off negative impact from the voluntary product withdrawal. The companyās ability to deliver on guidance will hinge on regaining share (especially in North America), stabilizing restaurant traffic, and successfully optimizing mix as capacity comes online. From a valuation perspective, the stock trades at elevated multiples (P/E ~24.8x; EV/EBITDA ~55.6x; P/S ~7.99x) which reflect the growth potential of the frozen-potato category but also the execution risks and macro headwinds. The investment thesis rests on (1) successful execution of 2025 plan to return volume growth and improve margin through productivity and smarter pricing, (2) meaningful contribution from new capacity and ERP-enabled efficiency, and (3) the ability to recapture market share in durable, higher-margin channels over the next 12ā24 months. Investors should monitor: quarterly progress on capacity ramp, trajectory of restaurant traffic (especially U.S. QSR hamburger channels), potato crop costs and contract pricing dynamics, and the durability of contract wins in the U.S. and key international markets.
Key Investment Factors
Growth Potential
Longāterm category growth in frozen potatoes with capacity additions (Netherlands, Argentina, China, Idaho) providing scale advantages and improved flexibility to match demand; potential to regain lost share through targeted price/trade investments and promotional activity; ongoing revenue growth management (RGM) to optimize pricing and mix in select markets.
Profitability Risk
Nearāterm revenue and earnings volatility from persistent restaurant traffic weakness, higher European potato costs despite fixed-price exposure, ERP integration risks and related transition costs, and potential continued share losses in a highly competitive environment; capital allocations and timing of capacity utilization could weigh on nearāterm margins.
Financial Position
Healthy liquidity with nearly $1.2B available under a new global revolver; net debt at ~$3.75B and 2.7x net debt/Adjusted EBITDA, indicating solid leverage for a capitalāintensive business; robust cash generation (operating cash flow ~$316.7M; free cash flow ~$150.6M) supports ongoing capex and shareholder returns, though near-term capex commitments exceed free cash flow in the year.
SWOT Analysis
Strengths
Leading global producer of value-added frozen potato products with multiāsegment reach (Global Foodservice, Retail, Other).
Strategic capacity expansions (China, Idaho; Netherlands and Argentina underway) and ERP upgrade to modernize production and processes.
Strong cash generation and resilient balance sheet; meaningful free cash flow and ability to fund capex while returning cash to shareholders.
Weaknesses
Recent market share losses and ERP disruption contributing to a pronounced Q4 revenue and margin shortfall.
High fixed cost base and exposure to commodity costs and potato crop price variations, particularly in Europe.
Near-term leverage and integration risks associated with large capex projects and ERP deployment.
Opportunities
Volume-led growth through targeted price/trade investments and promotions to regain lost share in U.S. and key international markets.
RGM tools and mix optimization to offset inflation and improve profitability in a low-to-mid single-digit growth framework.
European crop dynamics and fixed-price contracts offering some hedging of input costs while capturing international growth.
Threats
Prolonged weakness in restaurant traffic, especially QSR dynamics in the U.S., impacting fry demand and utilization.
Agricultural commodity volatility and below-average crops in Europe potentially pressuring margins.
Competitive intensity and potential further share erosion if capacity utilization remains favorable for peers.