Why Lamb Weston (LW) Shares Are Falling Today

Kayode Omotosho /
2024/04/04 11:04 am EDT

What Happened:

Shares of potato products company Lamb Weston (NYSE:LW) fell 16.1% in the morning session after the company reported first-quarter results with revenue and EPS falling below analysts' estimates as the business transition to a new enterprise resource planning system (ERP) significantly disrupted its operations. According to management, 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". Lamb Weston also noted soft demand for restaurants in general and lowered its full-year revenue and EPS guidance, missing Wall Street's estimates. Overall, this was a bad quarter for Lamb Weston.

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What is the market telling us:

Lamb Weston's shares are not very volatile than the market average and over the last year have had only 3 moves greater than 5%. Moves this big are very rare for Lamb Weston and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 5.6% on the news that the company reported second-quarter results, with revenue and EPS beating Wall Street's estimates. Note that revenue growth numbers during the quarter--which might strike you as unusually high--included the consolidation of a joint venture, a transaction that was completed in February 2023. Management added that the business benefitted from inflation-driven pricing actions initiated in the previous year as well as improvements in customer and product mix. Looking forward, while revenue guidance was maintained from the previous outlook, EPS guidance was raised. Zooming out, this was a decent quarter, showing that the company is staying on track.

Lamb Weston is down 22.5% since the beginning of the year, and at $82.77 per share it is trading 28.1% below its 52-week high of $115.12 from July 2023. Investors who bought $1,000 worth of Lamb Weston's shares 5 years ago would now be looking at an investment worth $1,174.

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