Lamb Weston Holdings, Inc. LW, a leading supplier of frozen potato products, is facing significant challenges that are negatively impacting its performance. Overcapacity in the global market, declining restaurant traffic and escalating manufacturing costs are putting pressure on its growth. As a result, the company’s top and bottom lines declined year over year and missed the Zacks Consensus Estimate in second-quarter fiscal 2025.

Over the past three months, LW stock has slumped by 33.5%, underperforming the broader industry, which saw a 4.5% decline. The company has also lagged the Zacks Consumer Staples sector, which grew by 1.4%, and the S&P 500, which posted a 2.1% decline during the same period. 

LW's Share Price Performance

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LW’s Declining Volumes and Market Struggles

Lamb Weston continues to witness lower volumes, as witnessed in the second quarter of fiscal 2025. The company saw a 6% decrease in volume due to softened global restaurant traffic. In addition, customer share losses have compounded the issue, with Lamb Weston facing heightened competition. This trend reflects broader challenges in the frozen potato market, as demand remains sluggish.

In the North America segment, LW saw a 5% decline during the fiscal second quarter, while international markets experienced a 6% drop. These losses were further exacerbated by the company’s decision to exit certain lower-margin businesses in Europe, which impacted its overall volume.

High Costs Weigh on LW’s Profitability

Lamb Weston’s escalated manufacturing costs have added another layer of complexity to its situation. In the fiscal second quarter, the company faced rising input costs, particularly for raw potatoes, which impacted its profit margins. Transportation and warehousing costs also saw a sharp increase, and inefficiencies in the production process further contributed to its struggles. This led to a $134.9 million drop in quarterly adjusted gross profit, with adjusted EBITDA decreasing by $95 million.

Tough Road Ahead for Lamb Weston

Lamb Weston anticipates that challenging conditions will persist through the remainder of fiscal 2025 and into fiscal 2026. The company is dealing with overcapacity in the global market, coupled with softening demand for frozen potatoes outside North America. As a result, management recently lowered its financial targets for fiscal 2025.

The company has revised its annual net sales target range to $6.35-$6.45 billion, down from the previous range of $6.6 billion to $6.8 billion for fiscal 2025. This adjustment reflects the higher competitive pressures on price/mix and volume in the International unit, incremental challenges in North America and the financial performance during the fiscal second quarter. Lamb Weston has lowered its adjusted earnings per share (EPS) to $3.05-$3.20 compared with the adjusted EPS of $4.15 to $4.35 projected earlier. This change is due to a reduced projection for net sales and adjusted gross profit, as well as an increased effective tax rate.

Final Words on LW Stock

Lamb Weston’s struggles with declining volumes, rising costs and competitive pressures paint a challenging picture for its near future. With revised financial targets and a disappointing performance, the outlook for the company remains uncertain, and it will need to navigate these headwinds carefully to regain momentum. At present, LW carries a Zacks Rank #5 (Strong Sell).

Top Three Consumer Staple Picks

Pilgrim’s Pride PPC, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank of 1 (Strong Buy). PPC delivered a positive earnings surprise of 25.7% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate figure for Pilgrim’s Pride’s current financial-year earnings indicates a decline of 5.4% from the prior-year reported level.

Tyson Foods, Inc. TSN operates as a food company worldwide. It currently carries a Zacks Rank #2 (Buy). TSN delivered a trailing four-quarter earnings surprise of almost 52%, on average.

The Zacks Consensus Estimate for Tyson Foods’ current fiscal-year sales and earnings indicates growth of almost 0.9% and 22.6%, respectively, from the prior-year reported levels.

Post Holdings POST, which is a consumer-packaged goods holding company, has a Zacks Rank of 2 at present. POST has a trailing four-quarter average earnings surprise of 22.3%.

The Zacks Consensus Estimate for Post Holdings’ current financial-year sales and EPS implies growth of 0.3% and 2.2%, respectively, from the year-ago numbers.

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This article originally published on Zacks Investment Research (zacks.com).

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