Lamb Weston Faces Tough Times Amidst Competition and Earnings Struggles
Lamb Weston is a global producer, marketer, and distributor of frozen potato products. The company offers frozen potatoes, commercial ingredients, and appetizers under the Lamb Weston brand, as well as other licensed brands and various customer labels.
Founded in 1950 and headquartered in Eagle, Idaho, Lamb Weston also engages in the vegetable and dairy businesses. It services a diverse range of clients, including retail and foodservice customers, specialty retailers, convenience stores, and both independent and chain restaurants.
Analysts Raise Concerns
Recently, analysts at Bank of America downgraded Lamb Weston’s stock, pointing to increasing global competition and disappointing quarterly results. A review of the earnings estimates reveals a concerning trend.
Industry Performance Insights
Lamb Weston (LW), categorized as a Zacks Rank #5 (Strong Sell) stock, belongs to the Zacks Food – Miscellaneous industry group. This group currently ranks in the bottom 37% out of around 250 Zacks Ranked Industries. Given this positioning, the expectation is that this industry will continue to lag the overall market for the next 3 to 6 months, maintaining the trend observed throughout 2024:
Image Source: Zacks Investment Research
Stocks in weaker industry tiers can often be viewed as potential short candidates. Even though some companies might outperform within a lagging industry, being part of a struggling group poses added challenges for recovery.
Lagging Stock Performance
Throughout this year, Lamb Weston shares have underperformed compared to the broader market, which has been reaching new heights. The stock has shown significant volatility, prompting speculation about potential opportunities as we approach the New Year.
Challenges Facing Lamb Weston
An important player in the frozen potato sector, Lamb Weston is confronting several difficulties. Key issues include reduced global restaurant traffic, heightened competition, and a challenging manufacturing environment.
Earnings Shortfalls & Future Expectations
Lamb Weston has missed earnings estimates in three out of the last four quarters. In early December, the company reported disappointing results for its fiscal second quarter. Adjusted earnings reached 66 cents per share, indicating a -35% miss from the consensus estimate and a steep -54% decline compared to the same period last year.
Net sales of $1.6 billion marked an -8% decrease year-over-year and also fell short of the Zacks Consensus Estimate. The company is struggling with lower volumes and anticipates ongoing challenges throughout this year as well as into fiscal 2026. Rising raw potato prices, inefficiencies in operations, and elevated transportation and storage costs are compounding these pressures.
On average, the company has recorded a trailing four-quarter earnings miss of -21.7%. This pattern of consistently falling short is often indicative of weaker stock performance, and LW follows suit.
Recently, analysts have sharply reduced their earnings estimates for Lamb Weston. For fiscal 2025, estimates have been cut by an alarming -18.31% in just the past two months. The updated Zacks Consensus EPS Estimate now stands at $3.48 per share, representing a -31.5% decline relative to the previous year.
Image Source: Zacks Investment Research
Declining earnings forecasts are a clear warning sign for investors and generally indicate a troubling trend that cautious investors closely monitor.
Current Stock Trends
As displayed in the chart below, LW stock is currently in a sustained downtrend. The stock has significantly underperformed relative to major indices and trades below a downward-sloping 200-day moving average (blue line), which is often seen as a bearish signal.
Image Source: StockCharts
Lamb Weston has struggled to maintain any upward traction above the 200-day average, leaving investors frustrated. An upward movement would require not only significant gains but also improved earnings estimate revisions to encourage any long positions. So far in 2023, LW stock has plummeted more than 35%.
Looking Ahead
With a deteriorating fundamental and technical outlook, it appears that Lamb Weston stock will remain stagnant for the foreseeable future. Being part of one of the weakest-performing industry groups adds another hurdle to an already challenging situation. The history of earnings misses and declining future estimates likely caps any upside potential, continuing to weigh on the stock.
Investors might consider avoiding this stock, or perhaps use it in a short or hedge strategy. Those optimistic about Lamb Weston should stay on the sidelines until signs of significant improvement emerge.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
