Lamb Weston Reports Fiscal Fourth Quarter and Full Year 2017 Results; Provides Fiscal Year 2018 Outlook

Fourth Quarter 2017 Highlights

• Net Sales increased 7% to $833 million
• Income from operations increased 136% to $123 million; Adjusted Income from Operations⁽¹⁾ increased 5% to $122 million
• Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ increased 12% to $176 million
• Diluted EPS was $0.51, up from $0.29 in fourth quarter 2016
• Adjusted Diluted EPS⁽¹⁾ was $0.51

Full Year 2017 Highlights

• Net Sales increased 6% to $3,168 million
• Income from operations increased 39% to $518 million; Adjusted Income from Operations⁽¹⁾ increased 24% to $542 million
• Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ increased 19% to $707 million; Pro forma Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ was $692 million
• Diluted EPS was $2.22, up from $1.92 in full year 2016
• Adjusted Diluted EPS⁽¹⁾ was $2.32
• Pro forma Adjusted Diluted EPS⁽¹⁾ was $2.02

Fiscal Year 2018 Outlook

• Net Sales expected to increase at low-to-mid single digit rate
• Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ expected to be $740-$760 million

EAGLE, Idaho--(BUSINESS WIRE)-- Lamb Weston Holdings, Inc. (NYSE:LW) announced today its fourth quarter and full year 2017 results, and provided its outlook for fiscal year 2018.

“We are pleased with our solid performance in fiscal year 2017, as we continued to deliver high service levels for our customers, while completing the spinoff from Conagra and building a strong foundation for sustainable growth as an independent company,” said Tom Werner, President and CEO. “We are also proud of our financial performance for the year as we exceeded each of our financial goals through balanced price/mix and volume-driven sales growth as well as disciplined cost management to expand product contribution margins.”

“Looking ahead to fiscal year 2018, we anticipate the operating environment to remain generally favorable, with solid demand growth for frozen potato products across most of our markets. In addition, we expect the industry’s production capacity to continue to be constrained, especially in North America. We are confident in our ability to build upon the momentum that we have created, leverage our investments in additional capacity to support our customers, execute our strategies and win in the marketplace to deliver on our outlook for the year.”

Q4 2017 Commentary

Net sales were $832.5 million, up 7 percent versus the year-ago period. Volume increased 4 percent, with growth across all business segments. Price/mix increased 3 percent due to pricing actions and favorable product and customer mix.

Income from operations rose 136 percent to $122.5 million from the prior year period and included $2.8 million of costs related to the spinoff from Conagra Brands, Inc. (formerly ConAgra Foods, Inc., “Conagra”) and a $3.1 million non-cash gain on assets. Most of the increase reflects the impact of $64.1 million of expenses incurred in the prior year period, including pension charges for actuarial losses and costs related to the spinoff. Excluding these comparability items, favorable price/mix and volume, as well as supply chain efficiency savings, largely drove the growth in income from operations, partially offset by packaging, manufacturing, edible oil and transportation and warehousing cost inflation. In addition, selling, general and administrative expense rose, largely due to incremental costs associated with being a stand-alone public company, as well as higher incentive compensation costs attributable to the Company’s operating performance.

Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ was $176.4 million, up 12 percent versus the prior year, mainly reflecting higher equity method investment earnings as well as growth in income from operations.

Diluted EPS increased 76 percent to $0.51 from $0.29 in the fourth quarter of fiscal 2016, largely due to pension charges for actuarial losses and costs related to the spinoff from Conagra in the prior year period, higher equity method investment earnings and growth in income from operations. The increase was partially offset by higher interest costs. Adjusted Diluted EPS⁽¹⁾ was $0.51, down 11 percent from $0.57 in the prior year period, primarily due to higher interest costs, partially offset by higher equity method investment earnings and growth in income from operations.

The effective tax rate⁽²⁾ was 34 percent in the fourth quarter of fiscal 2017.

Q4 2017 Segment Highlights

Global

Net sales for the Global segment, which is comprised of the top 100 North American based restaurant chain customers as well as its international business, increased 6 percent to $421.4 million. Volume increased 4 percent, driven by growth in both domestic and international markets. Price/mix increased 2 percent, largely reflecting price increases and improvement in customer and product mix.

Global Segment Product Contribution Margin⁽¹⁾ increased 10 percent to $83.9 million, primarily driven by favorable volume and price/mix.

Foodservice

Net sales for the Foodservice segment, which services North American foodservice distributors and restaurant chains outside the top 100 North American based restaurant chain customers, increased 9 percent to $277.0 million. Price/mix increased 8 percent, reflecting pricing actions and improvement in customer and product mix. Volume increased 1 percent, largely driven by demand from independent restaurant operators, as well as small and mid-sized restaurant chains.

Foodservice Segment Product Contribution Margin⁽¹⁾ increased 24 percent to $89.3 million, primarily driven by favorable price/mix.

Retail

Net sales for the Retail segment, which includes sales of Alexia branded, licensed branded and private label products to grocery, mass merchant and club customers in North America, increased 5 percent to $99.0 million. Volume increased 7 percent, primarily driven by growth of private label products. Price/mix declined 2 percent, largely due to higher trade spending in support of the introduction of Grown in Idaho branded products as well as unfavorable mix.

Retail Segment Product Contribution Margin⁽¹⁾ declined 17 percent to $14.7 million, mainly due to lower price/mix.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures were $23.8 million, an increase of $8.4 million from the prior year period, as favorable price/mix and cost savings initiatives more than offset the impacts of higher raw potato costs in Europe.

Fiscal Year 2017 Commentary

Net sales were $3,168.0 million, up 6 percent versus the year-ago period. Price/mix increased 4 percent due to pricing actions and favorable product and customer mix. Volume increased 2 percent, with growth across all business segments.

Income from operations rose 39 percent to $518.3 million from the prior year period, and included $26.5 million of costs related to the spinoff from Conagra as well as a $3.1 million non-cash gain on assets. A portion of the increase for fiscal 2017 reflects the impact of $64.9 million of expenses incurred in the prior year, which are largely comprised of the actuarial losses of a pension liability and costs related to the spinoff. Favorable price/mix, volume gains and supply chain efficiency savings largely drove the remainder of the increase. The increase was partially offset by edible oil, manufacturing and packaging inflation, as well as higher selling, general and administrative expenses, largely due to incremental costs associated with being a stand-alone public company and higher incentive compensation costs attributable to the Company’s operating performance.

Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ was $707.1 million, up 19 percent versus the prior year period, mainly reflecting growth in income from operations. Pro forma Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ was $692.1 million, and includes an additional $15.0 million of selling, general and administrative expenses to reflect the full-year impact of incremental costs associated with being a stand-alone public company.

Diluted EPS increased 16 percent to $2.22 from $1.92 in fiscal 2016, largely due to higher income from operations and pension charges for actuarial losses in the prior year. The increase was partially offset by higher interest expense, higher costs related to the spinoff from Conagra and lower equity method investment earnings. Adjusted Diluted EPS⁽¹⁾ was $2.32, up 10 percent from $2.11 in the prior year, primarily due to higher income from operations, partially offset by higher interest costs. Pro forma Adjusted Diluted EPS⁽¹⁾ was $2.02 and includes the after-tax, per share impact of the additional selling, general and administrative expenses described above as well as an additional $50.0 million of interest expense to reflect the full-year impact of the Company’s capital structure after the spinoff.

The effective tax rate⁽²⁾ was 33 percent for fiscal 2017.

Fiscal Year 2017 Segment Highlights

Global

Net sales for the Global segment increased 5 percent to $1,624.8 million. Volume increased 4 percent, driven by growth in both domestic and international markets. Price/mix increased 1 percent, largely reflecting price increases as well as improved customer and product mix.

Global Segment Product Contribution Margin⁽¹⁾ increased 16 percent to $343.0 million, primarily driven by favorable price/mix, supply chain efficiency savings and volume gains.

Foodservice

Net sales for the Foodservice segment increased 9 percent to $1,030.0 million. Price/mix increased 8 percent, reflecting pricing actions as well as improvement in customer and product mix.

Foodservice Segment Product Contribution Margin⁽¹⁾ increased 31 percent to $333.1 million, largely due to favorable price/mix, supply chain efficiency savings and volume gains.

Retail

Net sales for the Retail segment increased 3 percent to $384.9 million. Price/mix increased 2 percent, reflecting higher prices and favorable customer and product mix. Volume increased 1 percent, primarily driven by growth of licensed brands and private label products.

Retail Segment Product Contribution Margin⁽¹⁾ increased 13 percent to $78.3 million, driven by favorable price/mix, supply chain efficiency savings, lower advertising and promotional expense and volume gains.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures were $53.3 million, a decrease of $18.4 million from the prior year, largely due to a $17.7 million non-cash gain related to the settlement of a pension plan of the Company’s Lamb-Weston/Meijer joint venture in the prior year, as well as higher raw potato costs in Europe, which were essentially offset by favorable price/mix and cost savings initiatives.

Outlook

The Company provides earnings guidance on a non-GAAP basis and does not reconcile guidance to GAAP as the Company cannot predict certain elements that are included in reported GAAP results, including costs related to the spinoff from Conagra and other items impacting comparability.

For fiscal 2018, the Company expects:

• Net sales to grow low-to-mid single digits, with price/mix and volume growth improving in the second half of the year as new pricing structures for an increasing number of customer contracts become effective and as the Company’s new processing capacity becomes available.
• Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾ in the range of $740 million to $760 million, including higher selling, general and administrative expenses as a percentage of sales due to the full-year impact of incremental costs associated with being a stand-alone public company, as well as higher advertising and promotional expense in support of the launch of the Company’s Grown in Idaho product line in retail. Using the mid-point of the range, this represents an increase of approximately 8 percent versus a fiscal 2017 pro forma Adjusted EBITDA including unconsolidated joint ventures of $692 million.

In addition, the Company expects:

• Total interest expense to be in the range of $105 million to $110 million, which is an increase of approximately $45 million to $50 million from fiscal 2017 due to the full-year impact of the Company’s capital structure after the spinoff.
• An effective tax rate⁽²⁾ in the range of 33 to 34 percent.
• Cash used for capital expenditures of approximately $225 million, with the majority spent in the first half of the fiscal year as the Company completes the construction of an additional production line at its Richland, Washington facility.

End Notes

(1) Adjusted EBITDA including unconsolidated joint ventures, pro forma Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Diluted EPS, pro forma Adjusted Diluted EPS and Segment Product Contribution Margin are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures and the reconciliations at the end of this press release for more information. Pro forma Adjusted Diluted EPS includes $15.0 million ($10.0 million after-tax) and $50.0 million ($33.2 million after-tax), respectively, for a full year of stand-alone public company costs and interest expense for a full year to reflect the Company’s capital structure.

(2) The effective tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Webcast and Conference Call Information

Lamb Weston will host a conference call to review its fourth quarter and fiscal year 2017 results at 10:00 a.m. EDT today. A listen-only webcast will be provided at www.lambweston.com.

About Lamb Weston

Lamb Weston, along with its joint venture partners, 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 industry in innovation, introducing inventive products that simplify back-of-house management for our customers and make things more delicious for their customers. From the fields where Lamb Weston potatoes are grown to proactive customer partnerships, Lamb Weston always strives for more and never settles. Because, when we look at a potato, we see possibilities. Learn more about us at lambweston.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. The Company undertakes no responsibility for updating these statements. Readers of this press release should understand that these statements are not guarantees of performance or results. Many factors could affect the Company’s actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this press release. These risks and uncertainties include, among other things: the Company’s ability to successfully execute its long-term value creation strategy; the competitive environment and related conditions in the markets in which we operate; political and economic conditions of the countries in which it conducts business and other factors related to its international operations; disruption of its access to export mechanisms; its ability to complete proposed acquisitions or integrate acquired businesses or execute on large capital projects; its future debt levels; the availability and prices of raw materials; changes in its relationships with its growers or significant customers; the success of its joint ventures; actions of governments and regulatory factors affecting its businesses; the ultimate outcome of litigation or any product recalls; levels of pension, labor and people-related expenses; its ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; and other risks described in the Company’s reports filed from time to time with the Securities and Exchange Commission. The Company cautions readers not to place undue reliance on any forward-looking statements included in this press release, which speak only as of the date of this press release.

Non-GAAP Financial Measures

To supplement the financial information included in this press release, the Company has presented Adjusted Income from Operations, Adjusted EBITDA including unconsolidated joint ventures, pro forma Adjusted EBITDA including unconsolidated joint ventures, Adjusted Diluted EPS, pro forma Adjusted Diluted EPS and Segment Product Contribution Margin, each of which is considered a non-GAAP financial measure. The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, financial measures prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") that are presented in this press release. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable GAAP financial measures, such as net income, diluted earnings per share, or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing the Company's performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect the Company's underlying operations. Management believes that presenting these non-GAAP financial measures provide investors with useful information because they (i) provide meaningful supplemental information regarding financial performance by excluding certain items, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating the Company's results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting the Company's business than could be obtained absent these disclosures.

Lamb Weston Holdings, Inc.
Reconciliation of Non-GAAP Financial Measures
(unaudited, dollars in millions)

To supplement the financial information included in this Earnings Release, we have presented Adjusted EBITDA including unconsolidated joint ventures, which is considered a non-GAAP financial measure. The following table reconciles net income attributable to Lamb Weston to Adjusted EBITDA including unconsolidated joint ventures.

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Lamb Weston Holdings, Inc.
Investors:
Dexter Congbalay, 224-306-1535
[email protected]
or
Media:
Shelby Stoolman, 208-424-5461
[email protected]

Source: Lamb Weston Holdings, Inc.