Bearish stock to watch: Lamb Weston Holdings Inc (NYSE: LW)

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Lamb Weston Holdings Inc (NYSE: LW) stock fell over 0.3% on 2nd October, 2019 (as of 12:21 pm GMT-4 ; Source: Google finance) after the company posted mixed results for the  first quarter of FY 20. Income from operations grew 11 percent to $170.0 million compared to the year-ago period, due to higher sales and gross profit

LW in the first quarter of FY 20 has reported the adjusted earnings per share of 79 cents, missing the analysts’ estimates for the adjusted earnings per share of 80 cents, as per Zacks Investment Research. The company had reported the adjusted revenue growth of 8 percent to $989 million in the first quarter of FY 20, beating the analysts’ estimates for revenue of $971.8 million. The Volume grew by 6 percent, mainly due to growth in the Company’s Global segment, and includes an approximate 1 percentage point benefit from acquisitions. Price/mix expanded 2 percent due to pricing actions and favorable mix. Gross profit has increased by $18 million due to favorable price/mix and volume growth. This increase was partially offset by higher manufacturing costs due to inefficiencies, which were mainly due to higher maintenance and related costs. Gross profit growth was affected by input cost inflation and higher depreciation expense primarily associated with the Company’s french fry production line in Hermiston, Oregon, which started operating towards the end of the fourth quarter of fiscal 2019.

Moreover, the net sales for the Global segment grew $50.8 million to $517.6 million, up 11 percent compared to the prior year period. Net sales for the Foodservice segment grew $7.6 million to $305.4 million, up 3 percent compared to the prior year period. Net sales for the Retail segment, grew $13.1 million to $129.3 million, up 11 percent compared to the prior year period. Equity method investment earnings from unconsolidated joint ventures in Europe and the U.S. were $10.6 million and $19.9 million for the first quarter of fiscal 2020 and 2019, respectively.

For fiscal 2020, the Company expect the net sales to grow mid-single digits, mainly due to volume as well as modestly higher price/mix. Adjusted EBITDA including unconsolidated joint ventures is expected to be in the range of $950 million to $970 million. Equity method investment earnings is  anticipated to improve compared to fiscal 2019, reflecting the effect of a normalized raw potato cost environment in Europe.

The Company has raised its target for capital expenditures to approximately $300 million from approximately $275 million to reflect updated spending estimates for the upgrade of its enterprise resource planning system and other capital projects.

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