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Category: Stock Market and Lamb Weston
Date: 4 January 2020 Stock Price: $93.56 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Lamb Weston a leading supplier of frozen potatoes, sweet potato, appetizer and vegetable products to restaurants and retailers around the world.
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About Lamb Weston
Lamb Weston is a leading supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers around the world. For more than 60 years, Lamb Weston has led the frozen potato industry in innovation, introducing inventive products for our customers. Lamb Weston products can be found in more than 100 countries around the world. The business is headquartered in Eagle, Idaho, with manufacturing operations focused in the Pacific Northwest, primarily in the world’s best potato-growing region, the Columbia River Basin. Lamb Weston employs more than 6,000 people around the world in sales offices, manufacturing plants and corporate offices
Overview of Lamb Weston's latest earnings report
- Net sales: $1.019 billion (up from $911.4 million for the same quarter of the previous year)
- Net sales increased by 11.8% over the last 12 months
- Cost of sales: $734.1 million (up from $662.4 million for the same quarter of the previous year)
- Cost of sales increased by 10.82% over the last 12 months
- Net income: $140.4 million (up from $119 million for the same quarter of the previous year)
- Diluted earnings per share: $0.95 (up from $0.74 for the same quarter of the previous year)
- PE ratio of Lamb Weston : 26.9
- PE ratio of Lamb Weston : 26.9
- Dividend declared: $0.20
- Dividend yield: 0.8%
- Diluted weighted-average shares outstanding: 147.1 million (down from 147.4 million for the same quarter of the previous year)
- Cash and cash equivalents: $23.8 million
- Cash and cash equivalents per share: $0.16
- Cash and cash equivalents makes up 0.17% of Lamb Weston's market capital
- Cash and cash equivalents makes up 0.68% of Lamb Weston's total assets
- Accounts receivable: $399.7 million
- Accounts receivable makes up 11.5% of Lamb Weston's total assets
- Inventories: $636 million
- Inventories makes up 18.4% of Lamb Weston's total assets
- Stockholders equity of Lamb Weston: $201.1million
- Stockholders equity per share for Lamb Weston's : $1.36
- So Lamb Weston is trading at 68.8 times it stockholders equity per share which is well outside the expected range of between 2 and 4 times most companies tend to trade at.
- Cash provided by operating activities for the 6 months of the fiscal year: $345.3 million
- Cash provided by operating activities per share for the 6 months of the fiscal year: $2.34
Lamb Weston's management commentary on their 2nd quarter 2020 earnings
EAGLE, Idaho--(BUSINESS WIRE)-- Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fiscal second quarter 2020 results.
“In the second quarter, we delivered strong sales, volume and earnings growth across each of our core business segments by continuing to execute well across the organization,” said Tom Werner, President and CEO. “We’re generating strong cash flow, and we’re investing that cash back into the business to support customer growth, improve manufacturing operations and systems, and bolster our presence in key markets such as Australia and South America. We’re also returning more cash to shareholders, including recently raising our quarterly dividend by 15 percent.”
“In the second quarter, we delivered strong sales, volume and earnings growth across each of our core business segments by continuing to execute well across the organization,” said Tom Werner, President and CEO. “We’re generating strong cash flow, and we’re investing that cash back into the business to support customer growth, improve manufacturing operations and systems, and bolster our presence in key markets such as Australia and South America. We’re also returning more cash to shareholders, including recently raising our quarterly dividend by 15 percent.”
“Because of our strong performance in the first half of fiscal 2020, we have raised our annual outlook for sales growth and EBITDA. We anticipate delivering solid results in the second half of the year, supported by continued favorable restaurant traffic trends. While overall raw potato supply in North America and Europe is tight due to relatively poor weather late in the growing season and during the harvest, we expect to have enough raw potatoes to support our volume growth targets for the year. We’ll continue to evaluate opportunities to improve price and mix in each of our business segments. Over the long term, we remain committed to executing on our strategies, driving growth and creating value for all our stakeholders.”
Cash Flow
Through the first half of fiscal 2020, net cash from operating activities increased $28.5 million to $345.3 million, primarily driven by earnings growth. Capital expenditures, including for information technology items, were $107.4 million in fiscal 2020, down $63.0 million versus the prior year period due to investments for the construction of a new production line in Hermiston, Oregon, which was completed in the fourth quarter of fiscal 2019.
Capital Returned to Shareholders
In the first half of fiscal 2020, the Company returned a total of $71.9 million to shareholders, including $58.5 million in dividends and $13.4 million in share repurchases. The average price per share repurchased was $72.61. The Company has approximately $205 million remaining under its current $250 million share repurchase authorization.
Fiscal 2020 outlook
The Company is updating its fiscal 2020 outlook, which includes the contribution of a 53rd week in the fiscal 2020 period, with the additional week falling in the fourth quarter, as follows:
Cash Flow
Through the first half of fiscal 2020, net cash from operating activities increased $28.5 million to $345.3 million, primarily driven by earnings growth. Capital expenditures, including for information technology items, were $107.4 million in fiscal 2020, down $63.0 million versus the prior year period due to investments for the construction of a new production line in Hermiston, Oregon, which was completed in the fourth quarter of fiscal 2019.
Capital Returned to Shareholders
In the first half of fiscal 2020, the Company returned a total of $71.9 million to shareholders, including $58.5 million in dividends and $13.4 million in share repurchases. The average price per share repurchased was $72.61. The Company has approximately $205 million remaining under its current $250 million share repurchase authorization.
Fiscal 2020 outlook
The Company is updating its fiscal 2020 outlook, which includes the contribution of a 53rd week in the fiscal 2020 period, with the additional week falling in the fourth quarter, as follows:
- Net sales to grow at the high end of the mid-single digit range, largely driven by volume as well as modestly higher price/mix.
- Adjusted EBITDA including unconsolidated joint ventures(1) in the range of $965 million to $985 million, an increase from the Company’s previous estimate of $950 million to $970 million. The Company expects:
- Volume-driven gross profit growth, with higher price/mix offsetting input cost inflation;
- SG&A, excluding advertising and promotional expenses and investments to upgrade the Company’s enterprise resource planning and other information systems infrastructure, to be 8.0 percent to 8.5 percent of net sales.
- Equity method investment earnings to improve versus fiscal 2019, reflecting the effects of lower raw potato costs in Europe.
- An effective tax rate of approximately 24 percent versus the Company’s previous estimate of 23 to 24 percent.
Lamb Weston (NYSE: LW) stock price history
The image below, obtained from Google, shows the stock price history of Lamb Weston (NYSE:LW) since their listing. And it's been a very good time for Lamb Weston stockholders. At their listing in November 2016 they were trading around $33.50 a stock and they are currently trading at $93.56 a stock. That is a very strong return of 179.3% provided to Lamb Weston stockholders in the last three years, The stock of Lamb Weston is trading at closer to its 52 week high of $94.46 than it is to its 52 week low of $58.83 which to us is a clear indication that the momentum and sentiment towards Lamb Weston's stock is very positive.
Recent coverage of Lamb Weston
The extract below shows the latest coverage of Lamb Weston as obtained from The Motley Fool (Fool.com)
What happened
Shares of Lamb Weston (NYSE:LW) rose as much as 12.3% on Friday, boosted by a strong second-quarter earnings report. By 2:30 p.m. EST, the food processing company's stock had cooled down to a gain of 11%.
So what
The Idaho-based frozen potato products specialist saw second-quarter sales rise 12% year over year, landing at $1.02 billion. Adjusted earnings increased by 19% to $0.95 per diluted share. Your average analyst would have settled for earnings near $0.84 per share on revenue in the neighborhood of $965 million. Investors and analysts were expecting soft sales growth due to a poor potato-growing season in places like Minnesota and Canada, but Lamb Weston's farms in Idaho and the Columbia Basin were unaffected, allowing the company to keep the french-fry factories running at full speed in the second quarter.
Read the full article here
What happened
Shares of Lamb Weston (NYSE:LW) rose as much as 12.3% on Friday, boosted by a strong second-quarter earnings report. By 2:30 p.m. EST, the food processing company's stock had cooled down to a gain of 11%.
So what
The Idaho-based frozen potato products specialist saw second-quarter sales rise 12% year over year, landing at $1.02 billion. Adjusted earnings increased by 19% to $0.95 per diluted share. Your average analyst would have settled for earnings near $0.84 per share on revenue in the neighborhood of $965 million. Investors and analysts were expecting soft sales growth due to a poor potato-growing season in places like Minnesota and Canada, but Lamb Weston's farms in Idaho and the Columbia Basin were unaffected, allowing the company to keep the french-fry factories running at full speed in the second quarter.
Read the full article here
Lamb Weston (NYSE: LW) latest stock valuation
So what is Lamb Weston (NYSE: LW) stock worth based on the release of their latest earnings report and their outlook provided? Based on their earnings report and the fiscal guidance provided our valuation models provide a target (full value) price for Lamb Weston of $79.60 a stock (up slightly from our 1st quarter 2020 earnings review valuation of Lamb Weston). We therefore believe that the stock is overvalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $79.60. So we believe a good entry point into Lamb Weston stock would be at $71.40 or below.
We expect the stock of Lamb Weston to pull back from current levels after the hype following their latest earnings release dies down to levels closer to our target price (full value price) levels in coming weeks and months.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $79.60. So we believe a good entry point into Lamb Weston stock would be at $71.40 or below.
We expect the stock of Lamb Weston to pull back from current levels after the hype following their latest earnings release dies down to levels closer to our target price (full value price) levels in coming weeks and months.
Next earnings release of Lamb Weston
It is expected that Lamb Weston will release their 3rd quarter 2020 earnings report in early April 2020