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Category: Stock Market and Lamb Weston
Date: 2 April 2020 Stock Price: $51.74 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 3rd quarter 2020 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
- 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 3rd quarter 2020 earnings
EAGLE, Idaho--(BUSINESS WIRE)-- Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fiscal third quarter 2020 results.
“Our results in the third quarter were mixed,” said Tom Werner, President and CEO. “We drove solid growth in our Foodservice and Retail segments, but our Global segment’s sales declined due to the timing of sales of customized products and higher-margin limited time offering products, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China. In addition, all our segments had fewer shipping days related to the timing of the Thanksgiving holiday. We also realized the impact of higher-than-expected input and fixed cost inflation, which pressured earnings.”
“Our results in the third quarter were mixed,” said Tom Werner, President and CEO. “We drove solid growth in our Foodservice and Retail segments, but our Global segment’s sales declined due to the timing of sales of customized products and higher-margin limited time offering products, as well as the initial effects of the COVID-19 pandemic on restaurant traffic in China. In addition, all our segments had fewer shipping days related to the timing of the Thanksgiving holiday. We also realized the impact of higher-than-expected input and fixed cost inflation, which pressured earnings.”
“While the operating environment in most of our markets during the fiscal third quarter was favorable, estimates on the COVID-19 pandemic’s effect on the global economy are uncertain,” Werner continued. “At this time, despite only two months remaining in our fiscal fourth quarter, we are unable to reasonably forecast frozen potato product demand because of the pandemic’s unpredictable near-term effect on restaurant traffic in North America and our key international markets. As a result, we’re withdrawing our financial outlook for the remainder of our fiscal year.”
“During these uncertain times, our top priorities are to ensure the health and welfare of our employees, maintain product safety, and continue to support our customers as they work to manage their supply chains and inventories. While the near-term impact of the COVID-19 pandemic on consumer demand and sales volume is likely to be material, we believe we have sufficient liquidity to manage through the uncertainty, and we remain confident in the long-term outlook for our customers and the continued growth of the global category.”
Cash Flow
Through the third quarter of fiscal 2020, net cash from operating activities declined $8.7 million to $435.7 million, primarily due to increased working capital requirements. Capital expenditures, including information technology expenditures, were $152.0 million in the first three quarters of fiscal 2020, down $95.3 million versus the prior year period due to investments for the construction of a production line in Hermiston, Oregon, which was completed in the fourth quarter of fiscal 2019. At February 23, 2020, the Company had no borrowings on its revolving credit facility. During the latter part of March 2020, the Company borrowed $495 million on its revolving credit facility to increase its cash position as a precautionary measure in order to preserve financial flexibility considering the uncertainty in the global markets resulting from the COVID-19 pandemic.
Capital Returned to Shareholders
In the first three quarters of fiscal 2020, the Company returned a total of $110.6 million to shareholders, including $87.7 million in cash dividends and $22.9 million through share repurchases. The average price per share repurchased was $79.56. The Company has approximately $195.3 million remaining under its current $250 million share repurchase authorization. Given the uncertainty of the COVID-19 pandemic’s impact, the Company has temporarily suspended share repurchases to provide additional liquidity until there is more clarity about the future operating environment.
Outlook
The Company has withdrawn its financial outlook for fiscal year 2020 for net sales growth and for Adjusted EBITDA including unconsolidated joint ventures(1). At this time, the Company does not believe it can reasonably forecast frozen potato product demand in the near term due to the unpredictable near-term effect of the COVID-19 pandemic on the global economy, and more specifically, on restaurant traffic in North America and key international markets, including markets served by the Company’s joint ventures.
The Company’s previous outlook included the contribution of a 53rd week in the fiscal 2020 period, with the additional week falling in the fourth quarter.
The Company continues to expect for fiscal 2020:
“During these uncertain times, our top priorities are to ensure the health and welfare of our employees, maintain product safety, and continue to support our customers as they work to manage their supply chains and inventories. While the near-term impact of the COVID-19 pandemic on consumer demand and sales volume is likely to be material, we believe we have sufficient liquidity to manage through the uncertainty, and we remain confident in the long-term outlook for our customers and the continued growth of the global category.”
Cash Flow
Through the third quarter of fiscal 2020, net cash from operating activities declined $8.7 million to $435.7 million, primarily due to increased working capital requirements. Capital expenditures, including information technology expenditures, were $152.0 million in the first three quarters of fiscal 2020, down $95.3 million versus the prior year period due to investments for the construction of a production line in Hermiston, Oregon, which was completed in the fourth quarter of fiscal 2019. At February 23, 2020, the Company had no borrowings on its revolving credit facility. During the latter part of March 2020, the Company borrowed $495 million on its revolving credit facility to increase its cash position as a precautionary measure in order to preserve financial flexibility considering the uncertainty in the global markets resulting from the COVID-19 pandemic.
Capital Returned to Shareholders
In the first three quarters of fiscal 2020, the Company returned a total of $110.6 million to shareholders, including $87.7 million in cash dividends and $22.9 million through share repurchases. The average price per share repurchased was $79.56. The Company has approximately $195.3 million remaining under its current $250 million share repurchase authorization. Given the uncertainty of the COVID-19 pandemic’s impact, the Company has temporarily suspended share repurchases to provide additional liquidity until there is more clarity about the future operating environment.
Outlook
The Company has withdrawn its financial outlook for fiscal year 2020 for net sales growth and for Adjusted EBITDA including unconsolidated joint ventures(1). At this time, the Company does not believe it can reasonably forecast frozen potato product demand in the near term due to the unpredictable near-term effect of the COVID-19 pandemic on the global economy, and more specifically, on restaurant traffic in North America and key international markets, including markets served by the Company’s joint ventures.
The Company’s previous outlook included the contribution of a 53rd week in the fiscal 2020 period, with the additional week falling in the fourth quarter.
The Company continues to expect for fiscal 2020:
- Interest expense of approximately $110 million;
- An effective tax rate(2) excluding comparability items of approximately 24 percent; and
- Depreciation and amortization of approximately $175 million.
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 $51.74 a stock. That is a decent return of 54.4% provided to Lamb Weston stockholders in the last three years.
The stock of Lamb Weston is trading at closer to its 52 week low of $39.06than it is to its 52 week high of $96.32 which to us is a clear indication that the momentum and sentiment towards Lamb Weston's stock is very negative, as is the case with most stocks around the world considering the significant market sell offs that has been set on by the impact of the Coronavirus on global economic growth. Read more about the stock market sell off here
The stock of Lamb Weston is trading at closer to its 52 week low of $39.06than it is to its 52 week high of $96.32 which to us is a clear indication that the momentum and sentiment towards Lamb Weston's stock is very negative, as is the case with most stocks around the world considering the significant market sell offs that has been set on by the impact of the Coronavirus on global economic growth. Read more about the stock market sell off here
Recent coverage of Lamb Weston
The extract below shows the latest coverage of Lamb Weston as obtained from The Motley Fool (Fool.com)
Lamb Weston (NYSE:LW) earnings for the third quarter of 2020 have LW stock falling on Wednesday afternoon. This comes after reporting revenue of $937.3 million, which is below Wall Street’s estimate of $959.19 million. The company reported adjusted earnings per share (EPS) of 77 cents, while analysts were expecting adjusted per-share earnings of 93 cents for the quarter.
Source: ShutterstockLW’s earnings release had a few other points worth mentioning, including the following:
Read the full article here
Lamb Weston (NYSE:LW) earnings for the third quarter of 2020 have LW stock falling on Wednesday afternoon. This comes after reporting revenue of $937.3 million, which is below Wall Street’s estimate of $959.19 million. The company reported adjusted earnings per share (EPS) of 77 cents, while analysts were expecting adjusted per-share earnings of 93 cents for the quarter.
Source: ShutterstockLW’s earnings release had a few other points worth mentioning, including the following:
- Net income declined 21% year-over-year.
- Revenue for the quarter comes in 1.13% higher compared to $926.8 million during the same time last year.
- Operating income of $162.5 million is off 16.15% from the year-ago period.
- SG&A (selling, general and administrative) increased 8.3% YOY.
- LW returned $110.6 million through share buybacks and cash dividends, but announced it is discontinuing its share repurchase plan.
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 $52.80 a stock (down significantly from our 2nd quarter 2020 earnings review valuation of Lamb Weston due to the unknown impact of the Coronavirus on their future earnings). We therefore believe that the stock is close to fully valued.
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 $52.80. So we believe a good entry point into Lamb Weston stock would be at $47.50 or below.
We expect the stock of Lamb Weston to trade in a narrow range around its current price in coming weeks and months as investors wait out the Coronavirus and to asses the impact it will have on Lamb Weston's earnigns going forward.
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 $52.80. So we believe a good entry point into Lamb Weston stock would be at $47.50 or below.
We expect the stock of Lamb Weston to trade in a narrow range around its current price in coming weeks and months as investors wait out the Coronavirus and to asses the impact it will have on Lamb Weston's earnigns going forward.
Next earnings release of Lamb Weston
It is expected that Lamb Weston will release their 4th quarter and full fiscal 2020 earnings report in early July 2020