Lamb Weston Holdings, Inc. LW, a key player in the frozen potato industry, has been grappling with several challenges in recent months, including a decline in global restaurant traffic, rising competition and a tough manufacturing environment. These factors have put significant pressure on the company, leading to a weaker-than-expected performance for its second-quarter fiscal 2025. Weaker demand has caused Lamb Weston to lower its financial outlook for the rest of fiscal 2025.

The ongoing challenges have caused Lamb Weston’s stock to drop 23.6% over the past six months, significantly underperforming the industry’s 2.7% decline. The stock has also lagged behind the broader Zacks Consumer Staples sector, which saw a 0.4% decrease, and the S&P 500, which grew by 10.3% in this period.

A Tough Market Landscape Hurts LW’s Results

Lamb Weston is grappling with several headwinds, including weak restaurant traffic, heightened competition, overcapacity in the global market and escalating manufacturing costs. The company’s second-quarter fiscal 2025 results fell below expectations due to higher-than-expected manufacturing costs and weaker volumes. The company experienced incremental customer share losses in its North American and International segments, driven by an increasingly competitive landscape. This is particularly visible in markets such as the Middle East and parts of Asia Pacific.

As a result of these challenges, Lamb Weston’s fiscal second-quarter top and bottom lines declined year over year and missed the Zacks Consensus Estimate. The company’s price/mix decreased by 2%, thanks to planned investments in pricing and trade support, pricing adjustments in key international markets due to increased competition and an unfavorable mix of channels and products.

LW's Price Performance

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Lamb Weston’s Weak Volume Performance

Lamb Weston continues to witness lower volumes in the second quarter of fiscal 2025. The quarterly volume fell 6% due to weak global restaurant traffic trends, customer share losses offset by gains and the ongoing impact of the company’s strategic decision last year to exit certain lower-priced and lower-margin businesses in Europe. In the North America segment, volume fell by 5%, while volumes in the International segment dropped by 6%.

Lamb Weston’s Struggle With High Costs

Lamb Weston is grappling with high costs that are impacting its performance. In fiscal second quarter, the adjusted gross profit decreased by $134.9 million, reaching $343.5 million. This decline was due to increased manufacturing costs per pound, unfavorable price/mix and reduced sales volumes. The increased manufacturing costs per pound were due to input cost inflation, particularly higher raw potato prices, inefficiencies, and increased transportation and warehousing costs. In addition, higher depreciation expenses contributed to the rise in costs.

A Challenging Road Ahead for LW

Lamb Weston anticipates challenging conditions will persist through the remainder of fiscal 2025 and into fiscal 2026. These challenges are driven by accelerated capacity additions and continued softening in global frozen potato demand, mainly outside North America, until demand improves and capacity expansion stabilizes. As a result, Lamb Weston is lowering 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. 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 net income guidance to $440-$460 million, with adjusted earnings per share (EPS) revised to $3.05 to $3.20. Earlier, management had estimated adjusted net income of $600 million to $615 million and adjusted EPS of $4.15 to $4.35.

Final Words on LW

Lamb Weston is implementing a restructuring plan to improve operating efficiency and profitability. Despite these efforts, the company faces an uncertain future due to weak demand and rising costs, leaving its outlook bleak. With a Zacks Rank of #5 (Strong Sell), Lamb Weston carries significant downside risks, and investors should proceed with caution.

Some Solid Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Ingredion Incorporated INGR, Freshpet FRPT and US Foods Holding Corp. USFD.

Ingredion Incorporated 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 carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet, a pet food company, presently carries a Zacks Rank #2. 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 suggests growth of 27.2% and 228.6%, respectively, from the year-ago period’s reported figure.

US Foods, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to food service customers in the United States. It currently carries a Zacks Rank #2. USFD delivered a negative earnings surprise of 0.4% 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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Freshpet, Inc. (FRPT) : Free Stock Analysis Report

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