Lamb Weston Stock Wavers Despite Q2 Earnings Beat and Dividend Hike
Strong North American volume growth was offset by international margin pressures, leading to a mixed market reaction for the frozen potato giant.
Shares of Lamb Weston Holdings (NYSE: LW) were nearly flat in trading on Thursday, as investors digested a mixed second-quarter earnings report that saw the food processing giant beat analyst expectations but reveal underlying margin pressures in its international division.
The company posted fiscal second-quarter adjusted earnings of $0.69 per share, comfortably ahead of the $0.65 consensus estimate. Revenue for the quarter came in at $1.62 billion, edging out forecasts of $1.59 billion. Lamb Weston also announced a 3% increase in its quarterly dividend to $0.38 per share, a move typically signaling management's confidence in future cash flow. Despite these positive headlines, the stock saw a slight dip of 0.22% to $59.33, suggesting the market is looking deeper into the operational details.
The divergence in performance between the company's two main segments tells the story. The North America segment was a clear bright spot, with an impressive 8% surge in volume. This growth was attributed to recent customer contract wins and market share gains that allowed the company to restart previously curtailed production lines. The segment's adjusted EBITDA increased by $18.6 million to $287.8 million, reflecting strong domestic demand and operational efficiency.
"The results reflect the positive momentum of our business, as we delivered robust volume growth and gained or maintained market share across our key categories and priority markets," said Mike Smith, President and CEO of Lamb Weston, in a statement released today. He credited the company’s performance to “high-level execution” by the team.
However, the strength in North America was counteracted by significant challenges in the International segment. While international sales volume grew by 7%, the segment's adjusted EBITDA plummeted by $21.4 million to $27.2 million. The company cited higher manufacturing costs, increased factory burden from lower utilization at international facilities, and start-up expenses for a new production facility in Argentina as primary reasons for the decline. Furthermore, price/mix in the international business fell by 8%, reflecting a competitive environment and unfavorable product mix.
This international weakness was the primary driver behind a 3% year-over-year decline in the company's total adjusted EBITDA, which settled at $285.7 million for the quarter.
To reassure investors, Lamb Weston's board not only approved the dividend hike but also reaffirmed its full-year financial targets for fiscal 2026. The company continues to project net sales between $6.35 billion and $6.55 billion and adjusted EBITDA in the range of $1.00 billion to $1.20 billion. This guidance suggests that management believes the international issues are manageable and that the full-year plan remains on track.
Wall Street analysts remain cautiously optimistic on the stock, with a consensus 12-month price target of $66.27, implying moderate upside from its current level. Prior to the announcement, analysts had largely rated the stock as a 'Buy' or 'Hold'. The market's subdued reaction indicates that investors are weighing the strong volume growth and shareholder returns against the clear margin erosion in international markets. Going forward, the key focus will be on Lamb Weston's ability to right-size its international production costs and navigate pricing pressures outside of its core North American market.