Lamb Weston is Wednesday's IBD Stock Of The Day, as the frozen potato giant is confident product price hikes will offset inflation headwinds in 2023. LW shares edged higher Wednesday.
The Eagle, Idaho-based frozen spud and french-fries giant sells retail and private-label products globally. It also runs vegetable and dairy business segments. Its largest customer, McDonald's, represented 10% of sales in fiscal 2022.
In the three years before the pandemic, company earnings grew an average 11% per year. Revenue growth averaged 7.9% during the same period.
Lamb Weston topped second-quarter earnings and revenue estimates in early January. The company reported EPS of $1.28, a 156% increase compared to a year ago. Lamb Weston revenue grew 27% to $1.27 billion in Q2.
The McDonald's supplier also raised its 2023 outlook. Lamb Weston expects net sales of $4.8 billion-$4.9 billion, up from the previous view of $4.7 billion-$4.8 billion. The tater maker also now projects adjusted diluted earnings of $3.75-$4 per share, an increase from the original range of $2.45-$2.85 per share.
Lamb Weston sees its growth primarily driven by price increases, as the company works to counteract significant input and transportation cost inflation.
"We expect the continued implementation of pricing actions to counter higher input and potato costs to drive our financial results in the second half, while our volume performance will continue to be affected by supply chain constraints and inflationary pressures on consumers," CEO Tom Werner said on Jan. 5.
Lamb Weston also projects 2023 gross margin of 27% to 28% as price hikes offset rising costs of raw potatoes and softer sales volumes. The company had previously expected gross margins around 25%-26%.
Market Rally Keeps Rising; Three Key Earnings Movers
Lamb Weston Stock
LW shares pared early losses, ending Wednesday up 0.8% to 100.09 during market trading. Volume was higher-than-average during the day.
Lamb Weston stock stitched out a tight consolidation over the past several weeks, after it gapped up on earnings. LW shares are now holding above their 21-day exponential moving average. Investors could plot a 100.32 buy point, 1o cents above its Feb. 1 high. However, by the end of the week Lamb Weston stock is set to have formed a flat base with a 100.87 entry, according to MarketSmith analysis.
The McDonald's supplier has earnings are out of the way with Q3 financials coming in April. Analysts project EPS growing 34% to 98 cents and revenue increasing 22% to $1.16 billion. For 2023, Wall Street forecasts earnings ballooning 90% to $3.96 per share. Analysts view sales advancing 19% to $4.89 billion.
Lamb Weston stock leads IBD's Food-Packaged industry group. The group ranks No. 127 among the 197 industry groups tracked by IBD. LW shares have a 92 Composite Rating out of 99. Lamb Weston stock has a 95 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement. The EPS rating is 85.
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