Lamb Weston (LW), a leading supplier of frozen French fries to major fast-food chains like McDonald’s, KFC, and Taco Bell, has announced a significant leadership change following a surprise financial loss in its second quarter. The company, which produces around 80 million servings of fries daily worldwide, reported a $36 million loss, a sharp contrast to the $215 million profit from the previous year’s same quarter. This unexpected downturn led to a more than 20% plunge in its shares on Thursday, currently printing the tape around $62.50, reflecting investor disappointment and concerns over the company’s strategic direction.
The appointment of Mike Smith as the new CEO, replacing Thomas Werner, comes as part of what the board describes as a “thoughtful, years-long succession planning process.” Smith, who has been with Lamb Weston since 2007 and was elevated to Chief Operating Officer last year, is seen by the board as the right leader to navigate the company through its current challenges. However, this internal promotion has not sat well with activist investor Jana Partners, who holds over 5% of Lamb Weston’s shares. Jana Partners has been vocal about the company’s leadership, citing “chronic mis-execution” and a “bloated expense structure” among other issues. They’ve criticized the decision to replace Werner with another long-standing executive, questioning the effectiveness of such a move in addressing the company’s operational and strategic problems.
The backdrop to these leadership changes and financial downturns is a broader shift in consumer behavior post-pandemic. Inflation has prompted consumers to cut back on dining out, directly impacting Lamb Weston’s sales volumes. The company noted a 1.5% decline in traffic at hamburger chains, compounded by efforts from these chains, including McDonald’s, to attract customers with value meals. These initiatives, while beneficial for the fast-food chains in terms of foot traffic, have inversely affected Lamb Weston by reducing the demand for their high-margin frozen fry products.
McDonald’s, a significant customer for Lamb Weston, has itself faced global challenges with weak demand in markets like China due to economic slowdowns. Their response, extending a $5 value meal offer through December, has further pressured the volume of fries sold, as consumers opt for these budget-friendly options.
Amidst these challenges, Lamb Weston has also had to make tough decisions like job cuts and plant closures, announced in October, in response to sagging demand. The company’s shares have seen a dramatic 42% decline this year, mirroring the struggles and the market’s lack of confidence in the company’s recovery strategy.
Lamb Weston has revised its earnings outlook for 2025, projecting significantly lower results. The company now expects adjusted net income to fall within a range of $440 million to $460 million, with per-share earnings anticipated between $3.05 and $3.20 — well below Wall Street’s prior estimate of $4.21. Previously, Lamb Weston had forecast adjusted net income of $600 million to $615 million and diluted EPS between $4.15 and $4.35. This adjustment reflects not only the immediate financial impact of current market conditions but also a broader recalibration of expectations for the company’s performance in a changed economic landscape where consumer spending on dining out remains cautious.
In summary, Lamb Weston’s transition to new leadership under Mike Smith is set against a backdrop of financial distress, operational challenges, and a critical investor base pushing for more transformative changes. The company’s ability to adapt to current economic realities and consumer trends will be crucial in regaining market confidence and financial stability.
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