LW Q4 Deep Dive: Volume Growth Offset by Pricing Pressure and Margin Headwinds

Potato products company Lamb Weston (NYSE:LW) reported revenue ahead of Wall Streets expectations in Q4 CY2025, with sales up 1.1% year on year to $1.62 billion. On the other hand, the company’s full-year revenue guidance of $6.45 billion at the midpoint came in 1% below analysts’ estimates. Its non-GAAP profit of $0.69 per share was 6.4% above analysts’ consensus estimates.

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StockStory’s Take

Lamb Weston’s fourth quarter drew a significant negative market reaction amid concerns about softer profitability and a cautious forward outlook, despite the company beating Wall Street’s revenue and non-GAAP profit expectations. Management attributed the quarter’s results to strong volume growth, particularly in North America and Asia, and improved cost discipline through ongoing savings initiatives. However, CEO Mike Smith acknowledged that price mix headwinds, driven by increased trade support and a shift toward lower-margin sales, weighed on margins. Smith described the turnaround as “not linear,” emphasizing persistent macroeconomic and industry pressures.

Looking ahead, Lamb Weston’s management sees continued volume gains supported by high customer retention and recent contract wins, especially in North America. Still, the company maintained a cautious stance on profit guidance, noting ongoing headwinds from mix shifts toward private label and QSR customers, as well as elevated manufacturing costs internationally. CFO Bernadette Madarieta explained that ramp-up costs in Argentina and underutilization in Europe will continue to pressure margins, while investments in innovation and supply chain optimization are expected to drive future growth. Management stated, “We remain confident in delivering strong results for the year, supported by strong volume performance and progress under our cost savings initiatives.”

Key Insights from Management’s Remarks

Management cited strong customer relationships and operational improvements as key to volume gains, but acknowledged that unfavorable price mix and international cost pressures limited margin expansion.

• Volume-driven growth: Management highlighted 8% year-on-year volume growth, attributed to new customer wins, strong retention, and share gains, particularly in North America and Asia, even as restaurant traffic remained soft.
• Price mix headwinds: The company faced an 8% decline in price mix, resulting from higher trade support for customers and a shift toward lower-margin channels, including private label retail and multinational chain restaurants.
• Cost savings and operational efficiency: Lamb Weston continued to execute on its cost savings program, which included reopening previously curtailed production lines in North America to meet demand and improve utilization, as well as implementing new supply chain management tools.
• International margin pressure: The international segment, especially Europe and Latin America, saw lower profitability due to startup costs in Argentina, increased factory burden, and competitive pricing environments. Management noted that Europe was impacted by a strong potato crop, soft restaurant traffic, and increased local capacity.
• Innovation and product launches: The company introduced new products, such as Snap Prize (a crispy fast fry), targeting new usage occasions and customer segments like airlines, and continued to invest in R&D to support long-term differentiation.

Drivers of Future Performance

Lamb Weston’s outlook hinges on sustained volume momentum, successful cost management, and navigating mix and international cost headwinds.

• North America stability and mix shift: Management expects North America volumes to remain strong as recent contract wins and high customer retention persist. However, a continued shift toward private label and multinational chain customers is expected to weigh on price mix and gross margins for the rest of the year.
• International headwinds and ramp-up costs: The company anticipates ongoing challenges in international markets, particularly Europe, where a strong crop and added capacity are pressuring prices, and in Latin America, where ramp-up costs at the new Argentina facility will keep margins under pressure until utilization improves.
• Cost savings and innovation investments: While cost savings initiatives are projected to offset some margin headwinds, management signaled increased spending on innovation, advertising, and supply chain optimization in upcoming quarters, which may limit near-term margin expansion but are intended to position the company for future growth.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will watch (1) whether Lamb Weston’s volume momentum in North America can offset ongoing mix and pricing headwinds, (2) the pace of margin recovery as cost savings initiatives and supply chain optimization take hold, and (3) progress in ramping up production and achieving profitability improvements at the new Argentina facility. Execution on innovation and the ability to adapt to competitive international dynamics will also be important markers to monitor.

Lamb Weston currently trades at $43.88, down from $59.33 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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