Shares Of Major French-Fry Supplier Crash As Restaurant Traffic Slowdown Worsens

One of the world’s largest producers and processors of frozen french fries, waffle fries, and other frozen potato products reported fourth-quarter profit and sales that missed estimates. The company also issued a below-consensus full-year adjusted EBITDA outlook due to sliding global restaurant traffic. This is an ominous sign, as elevated inflation and high interest rates are squeezing consumers. 

Lamb Weston reported adjusted earnings per share of 78 cents for the fourth quarter ending May 26, which was well below analysts’ expectations tracked by Bloomberg of $1.25. Revenue also missed, coming in at $1.61, versus the average estimated $1.7 billion. 

Here’s a snapshot of fourth-quarter earnings (courtesy of Bloomberg): 

Adjusted EPS 78c, estimate $1.25 (Bloomberg Consensus)

Adjusted Ebitda $283.4 million, estimate $357.4 million

North America adjusted Ebitda $276.5 million

Net sales $1.61 billion, estimate $1.7 billion

North America net sales $1.11 billion, estimate $1.17 billion

International net sales $498.7 million, estimate $530.7 million

North America volume -7%

International volume -9%

Price/mix +3%, estimate +5.41%

North America price/mix +3%

International price/mix +2%

“We are disappointed by our fourth quarter performance,” Chief Executive Tom Werner wrote in a statement. 

Werner noted, “Our price/mix results were below our expectations, while market share losses and a slowdown in restaurant traffic in the U.S. and many of our key international markets were greater than we expected. We also incurred losses related to a voluntary product withdrawal.

Lamb Weston’s forward-looking guidance for the year added to the disappointing results:

Sees adjusted Ebitda $1.38 billion to $1.48 billion, estimate $1.63 billion

Sees net sales $6.6 billion to $6.8 billion, estimate $6.79 billion

Sees capital expenditure about $850 million, estimate $878.9 million

“We expect fiscal 2025 to be another challenging year. The operating environment has changed rapidly over the past twelve months as global restaurant traffic and frozen potato demand softened due to menu price inflation continuing to negatively affect global restaurant traffic,” the CEO said.

According to Bloomberg supply chain data, Lamb Weston is a major french fry supplier for McDonald’s, deriving about 13% of its revenue from the fast food giant. 

Shares of Lamb Weston in New York crashed at the start of the cash session, down more than 21%, the largest intraday decline since shares started trading in 2016. 

Lamb Weston’s dismal earnings report and outlook reflect consumers pulling back on discretionary spending.

We’ve detailed for months about the onset of a consumer slowdown:

Goldman Tells Top Clients To Start “Shorting The Middle-Income Consumer”
Goldman’s Commentary On Consumer Health Is An Ominous One
“Did Something Change?”: Goldman Trading Desk Warns Hedge Funds Are Suddenly Dumping Consumer Stocks

Including these… 

Restaurant Stocks Slide As Wall Street Sours On Consumer
Fast Casual Dining Foot Traffic “Plummets” Across New York-New Jersey As Consumer Cracks
Restaurants Face Unappetizing Slowdown As Consumers Buckle Amid Two-Year Inflation Storm

Let’s not forget that Wall Street has been dumping restaurant stocks while MAG7 has taken the overall S&P500 index to new highs. 

All of this plays into the consumer downturn theme.