Lamb Weston Holdings has recently revised its profit forecasts following a restructuring initiative that entails the permanent closing of a US processing plant and subsequent job reductions. In its first-quarter report, the frozen potato products supplier announced the immediate shutdown of the Connell facility in Washington.
Although Lamb Weston has not disclosed the specific number of jobs affected at Connell, local news reports suggest that approximately 375 positions are at risk. More broadly, the company anticipates reducing its global workforce by around 4% while also canceling any unfilled job openings.
The publicly traded entity aims to achieve approximately $55 million in pre-tax cost savings during the current fiscal 2025 as a result of this restructuring strategy, which will also involve temporarily halting production lines and adjusting schedules in North America. Additionally, capital expenditures will decrease by $100 million, and the company estimates that the restructuring will incur pre-tax charges between $200 million and $250 million.
As group sales declined by 1% this quarter, primarily due to a prolonged downturn in the North American market, President and CEO Tom Watson stated, “Restaurant traffic and frozen potato demand, relative to supply, continue to be soft, and we believe it will remain soft through the remainder of fiscal 2025.”
Watson elaborated, “To drive operational and cost efficiencies, we are taking actions that include the permanent closure of an older, higher-cost processing facility and the temporary curtailment of certain production lines and schedules in our manufacturing network.” He emphasized that these measures aim to enhance factory utilization rates and mitigate the current supply-demand imbalance in North America.
Despite the decline in sales, the company’s full fiscal year sales target remains unchanged, set between $6.6 billion and $6.8 billion. However, their guidance for net income has been reduced to a range of $395 million to $445 million, down from the previous target of $630 million to $705 million. The expected diluted EPS is now projected at $2.70 to $3.15, compared to the earlier estimate of $4.35 to $4.85.
On an adjusted basis, net income is forecasted to be between $600 million and $615 million, with a diluted EPS of $4.15 to $4.35. While the outlook for adjusted EBITDA remains consistent at $1.38 billion to $1.48 billion, Lamb Weston has indicated that it is likely to finish the year towards the lower end of this range.
Capital expenditures will now be $100 million less than the previously stated $850 million. The company has outlined the restructuring costs as mainly involving expenses for contracted raw potatoes that will not be utilized, accelerating depreciation of assets, inventory write-downs, employee severance, and other one-time termination benefits.
In the first quarter, total sales decreased to $1.65 billion, with North American sales falling 3% to $1.10 billion, while international sales rose 4% to $550.4 million. Overall group volumes declined by 3%, attributed to market share losses and subdued foodservice traffic. However, the price/mix increased by 2% due to list-price hikes in both Europe and North America. Notably, net income across the Lamb Weston portfolio plunged 46% to $127 million, while diluted EPS dropped by 45% to $0.88.
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