What is driving Lamb Weston Holdings Inc (NYSE: LW) stock

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Lamb Weston Holdings Inc (NYSE: LW) stock surged over 12% in the pre-market session of April 2nd, 2020 (Source: Google finance) on better estimated results. The company ended the third quarter of FY 20 with cash and cash equivalents of $30.1 million, long-term debt and financing obligations (excluding current portion) of $2,195.3 million as well as total shareholders’ equity of $270.4 million. LW had generated $435.7 million as net cash from operating activities during the first three quarters of fiscal 2020. The company has also invested more than $150 million in capital expenditures and IT-related projects year-to-date. Through the first nine months, the company had bought back about $23 million of stock and paid $88 million in dividends to the shareholders.

LW in the third quarter of FY 20 has reported the adjusted earnings per share of 77 cents, while reported the adjusted revenue growth of 1 percent to $937.3 million in the third quarter of FY 20. This increase due to a 1% increase in price/mix. Volume was flat as growth in Foodservice segment was partially offset due to fall in the Global segment’s reported volume. While volume growth of non-customized or limited time offering products in the Global segment was strong, however it was more than offset by timing of sales of customized and higher-margin limited time offering products, as well as the initial effects of the pandemic on restaurant traffic in China.

Moreover, during the third quarter, gross profit declined by 8%, mainly due to input and fixed cost inflation. Edible oils drove most of the input cost inflation, while higher insurance rates and medical expenses drove most of the increase in fixed cost. Adjusted EBITDA, including joint ventures, decreased by 10% to $228 million. Lower sales and gross profit in the base business, which again mainly reflected the timing of sales in the Global segment and cost inflation, as well as higher SG&A led to the decline.

Meanwhile, on the uncertainty related to COVID-19, the management is unable to project frozen potato products demand in the near term. The management is particularly unsure about the impact of the pandemic on restaurant traffic in North America. Therefore, the company withdrew its sales and adjusted EBITDA guidance for fiscal 2020. Also, management lowered its capital expenditure guidance from about $300 million to nearly $200 million for the fiscal.

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