Lamb Weston’s Management Believes in the Global Frozen Potato Category's Sustainable Growth

Lamb Weston Holdings recently announced its results for the third quarter of fiscal 2024 and updated its full-year earnings targets for fiscal 2024.

Even though the implementation of a new enterprise resource planning (ERP) system in North America hurt Lamb Weston’s financial results for the quarter, according to Tom Werner, President, and CEO, the company’s top management remains confident in the underlying performance of the business, the health of the global frozen potato category and its ability to deliver sustainable, profitable growth over the long term.

“The ERP transition temporarily reduced the visibility of finished goods inventories located at distribution centers, which affected our ability to fill customer orders. In turn, this pressured sales volume and margin performance. While we are disappointed with the magnitude of the ERP transition’s effect on the quarter, after implementing systems adjustments and modifying processes, we believe the impact is behind us as our order fulfillment rates have normalized. As a result of the ERP transition’s impact and soft near-term restaurant traffic trends, we have reduced our annual sales and earnings guidance for the year. We remain confident in the underlying performance of the business, the health of the global frozen potato category, and our ability to deliver sustainable, profitable growth over the long term,” Werner declared.

At the beginning of the fiscal third quarter, the company transitioned certain central systems and functions, including order to cash, produce to deliver, source to pay, and inventory management, among others in North America to a new ERP system. After the transition, the Company experienced reduced visibility into finished goods inventories at its distribution centers, resulting in a higher-than-expected effect on customer order fulfillment rates. The transition had a greater impact on shipments of higher-margin mixed-product loads than shipments of single-product orders, resulting in an unfavorable mix. The Company partnered closely with its customers to minimize the impact and estimates the lower order fulfillment rates reduced sales volume growth by approximately 8% and net sales by approximately USD135m during the fiscal third quarter, with USD123m and USD12m in the company’s North America and international segments, respectively.

In total, the company estimates the ERP transition negatively impacted fiscal third-quarter net income by approximately USD72m, and Adjusted EBITDA by approximately USD95m. Concerning the impact on Adjusted EBITDA, the company estimates approximately USD55m related to lower order fulfillment rates and approximately USD40m related to incremental costs and expenses.

Of the approximately USD95m negative impact on Adjusted EBITDA, the company estimates that approximately USD83m impacted the North American segment, approximately USD5m impacted the International segment, and approximately USD7m impacted unallocated corporate costs.

The company believes the impact of the order fulfillment issues was contained to the fiscal third quarter as customer order fulfillment rates have been restored to pre-transition levels.