By Dhirendra Tripathi
Investing.com – Lamb Weston shares (NYSE:LW) fell more than 4% Thursday as the company cut its guidance for the year and said annual gross profit margins would remain below pre-pandemic’s 25% level.
The company now expects annual sales growth to be in low-single digits as compared to low-to-mid single digits it had guided in July. The muted outlook came in as the company’s first-quarter sales and earnings came in below estimates.
The supplier of french-fries and appetizers has one too many challenges to contend with in the coming quarters, according to President and CEO Tom Werner.
One of them is the extreme summer heat that negatively affected potato crops in the Pacific Northwest. Then there are industrywide operational challenges, including highly inflationary input and transportation costs, labor availability, and upstream and downstream supply chain disruptions.
All this, according to Werner, will result in higher costs as the year progresses, and significantly pressure its earnings.
However, Werner said shipments in each of the company’s core restaurant and foodservice sales channels is improving.
He said the company is taking price hikes to offset commodity inflation, restructuring freight policies, modifying production and crewing schedules to reduce labor volatility and adopting new practices to attract and retain staff. It is also rationalizing its product portfolio, Werner said.
First-quarter net sales rose 13% to $984 million as demand from restaurants for frozen potato products rose. Lower shipments of private label products and weaker demand for at-home consumption were dampeners. Price hikes helped.
Net profit fell by two-thirds to $29.8 million as cost of sales rose and so did selling, general and administrative expenses.