Lamb Weston Holdings released its fiscal third-quarter 2020 results, but decided to withdraw its outlook for the year, citing concerns over the coronavirus outbreak.
Net sales increased by 1% to USD937.3m versus the same last-year period, but the income from operation decreased by 16% to USD162.5m, reflecting lower gross profit and higher selling, general and administrative expenses (SG&A). Gross profit also declined USD23.0m. Net income attributable to Lamb Weston decreased by 21% to USD111.4m, showing a decline in income from operations and lower equity method earnings.
Diluted earnings per share decreased USD0.19, or 20%, to USD0.76. In the first three quarters of fiscal 2020, the company returned a total of USD110.6m to shareholders, including USD87.7m in cash dividends and USD22.9m through share repurchases. The average price per share repurchased was USD79.56. Given the uncertainty of the COVID-19 pandemic’s impact, Lamb Weston has temporarily suspended share repurchases to provide additional liquidity until there is more clarity about the future operating environment.
“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.”
Also during the third quarter of fiscal 2020, net cash from operating activities declined USD8.7m to USD435.7m, primarily due to increased working capital requirements. Capital expenditures, including information technology expenditures, were USD152.0m in the first three quarters of fiscal 2020, down USD95.3m 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.
Lamb Weston has withdrawn its financial outlook for the fiscal year 2020 for net sales growth and for adjusted EBITDA including unconsolidated joint ventures, saying that at this time it 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. Still, expectations for 2020 include an interest expense of approximately USD110m, an effective tax rate (excluding comparability items) of approximately 24%, and depreciation and amortization of approximately USD175m.
“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 said. “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.”