Lamb Weston Holdings, Inc. LW, a leading supplier of frozen potato products, is facing significant challenges that are negatively impacting its performance. Soft demand for frozen potatoes, declining restaurant traffic and rising manufacturing costs are putting pressure on the company’s growth.

Despite its dominant position in the market, Lamb Weston has struggled to overcome these obstacles, resulting in a disappointing performance. Over the past year, LW stock has fallen 24.4%, underperforming the broader industry, which saw a 1.9% decline. The company has also lagged the Zacks Consumer Staples sector, which grew 6.3%, and the S&P 500, which posted a 32% gain during the same period.

Reduced Demand Weighs on Lamb Weston

One of the key factors behind Lamb Weston’s challenges is reduced restaurant traffic. In its first-quarter fiscal 2025 earnings call, the company revealed that restaurant traffic and frozen potato demand remain soft compared with supply. In the United States, restaurant traffic, including the key quick-service restaurant (QSR) sector, declined by 2% year over year, with QSR chains specializing in hamburgers seeing a nearly 3% drop, impacting fry consumption in fiscal first quarter.

Outside the United States, key international markets also experienced softer traffic. The U.K. saw a 3% decline, while Germany experienced a similar 3% drop. Traffic in France and Italy continued to grow but at a slower pace, while Spain remained flat. Lamb Weston expects this supply-demand imbalance, driven by declining traffic, to persist through fiscal 2025.

LW Stock Price Performance

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Lamb Weston Hurt by Weak Volumes

Another issue weighing heavily on Lamb Weston’s performance is its declining sales volumes. In first-quarter fiscal 2025, the company’s volume fell by 3%, caused by customer share losses, weak restaurant traffic and the company's strategic decision last year to exit lower-priced and lower-margin businesses in Europe. In addition, a voluntary product withdrawal in late fiscal 2024 impacted results, though growth in key international markets helped offset the volume decline.

Higher Costs a Woe for Lamb Weston

The company’s profitability is being squeezed by higher manufacturing costs. In the fiscal first quarter, Lamb Weston’s adjusted gross profit dropped $137.2 million to $353.1 million due to increased manufacturing costs per pound, product withdrawal impact, lower sales volumes and higher warehouse expenses. The rise in manufacturing costs was caused by factors like input cost inflation, higher raw potato costs and production inefficiencies. In addition, adjusted selling, general and administrative (SG&A) costs increased due to inflationary pressures and higher spending on information technology.

What’s Next for LW Investors?

Despite Lamb Weston’s strong brand recognition and global market presence, its current financial struggles suggest that investors should exercise caution in the short term. The company continues to face several challenges, including weaker-than-expected demand, rising manufacturing costs and declining restaurant traffic. These issues have led to declining profitability, signaling a potentially tough road ahead. At present, Lamb Weston currently holds a Zacks Rank #4 (Sell).

Some Solid Food Stock Picks

Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings implies growth of 27.3% and 228.6%, respectively, from the prior-year reported levels.

US Foods Holding Corp. USFD, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to foodservice customers in the United States. It currently carries a Zacks Rank #2. USFD delivered an earnings surprise of 3.7% in the last reported quarter.

The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.

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