EAGLE, IDAHO — Lamb Weston Holdings, Inc., posted lower-than-expected financial results for the second quarter of fiscal, noting in its earnings call on Dec. 19 that slow restaurant traffic and increased competition have led to reduced numbers for the company, which is the largest potato processor in North America and a leading producer of frozen french fries.

“Our second-quarter performance was below our expectations and not what we aim to achieve at Lamb Weston,” said Tom Werner, president and chief executive officer. “We expect the challenging operating environment will persist in the near term as weak restaurant traffic trends and additional capacity expansions announced by our competitors since our investor day last year add to the current imbalance in global industry supply and demand, especially outside North America.” 

Bernadette Madarieta, chief financial officer, added, “Traffic at QSR (quick-service restaurant) chains specializing in hamburgers in the second quarter declined about 1.5% versus the year-ago period. We continue to be encouraged by the improving trend in traffic and the steady rate. But as a reminder, many of these promotional meal deals have consumers trading down from a medium serving side to a small french fry serving side. As a result, while we benefit from improving traffic trends, the effect of the tradedown in serving sizes acts as a significant headwind to our volumes.”

The company’s net income for the quarter fell 117% year over year for a loss of $36.1 million during the quarter compared with earnings of $215 million, equal to $1.48 per share on the common stock, the year before.

Lamb Weston’s overall net sales for the second quarter were $1.6 billion, down 8% from the prior-year period when the company had sales of $1.7 billion. Income from operations dropped 94% to $18.5 million.

In the North America business unit, Lamb Weston’s sales dropped 8% year over year to $1.1 billion, volume declined 5%, and price mix fell 3%. The company’s North America EBITDA also declined $54.6 million to $266.7 million.

Net income for the first six months of fiscal 2025 was $91.3 million, equal to 64¢ per share on the common stock, and down from earnings of $449.8 million, or $3.10 per share, the year before. First-half sales fell to $3.3 billion from $3.4 billion.

Because of the weak results, Lamb Weston lowered its fiscal outlook for the rest of fiscal 2025. Net sales targets are now in the range of $6.35 billion to $6.45 billion, down from the previous range of $6.6 billion to $6.8 billion. Sales expectations for the second half of the year are now between $3.1 billion to $3.2 billion, and adjusted EBITDA is now expected to be between $1.17 billion and $1.21 billion, from a previous target of $1.38 billion. Adjusted net income also has been reduced to a range of $440 million to $460 million, down from $600 million to $615 million.

Looking ahead to the second half of fiscal 2025, Lamb Weston expects to deliver $600 million to $640 million of adjusted EBITDA, which Madarieta said is in line with what the company delivered in the prior period. 

Werner said on the earnings call that Lamb Weston “expects the operating environment in the near term will remain challenging as additional capacity expansions are announced during a period of ongoing pressure on demand. We are proactively adapting to this dynamic environment by strategically adjusting our footprint, reducing capital expenditures, managing our cost structure, and improving cash flow.”

He added that Lamb Weston is currently working on new opportunities for non-traditional customers to improve sales and volume.

“I’m not going to get into specifics in terms of volume potential and specific customer opportunities, but the way to think about it is things that we’ve done in the past with some of our customers that traditionally didn’t offer fries and/or tater tots,” he said. “(Those are) some of the things we’re looking at with some potentially new customer entrance into the frozen potato category.”

Jana Partners reacts to changes

On Dec. 19, Lamb Weston announced Werner would be stepping down next month as CEO and as a board member, replaced by current chief operating officer, Michael Smith. In response, activist investor Jana Partners — which owns more than a 5% stake in Lamb Weston — said in a statement the day of Lamb Weston’s second-quarter earnings announcement that the change in leadership was not enough. 

“Today’s disastrous financial results and decision to swap its CEO for another long-standing Lamb Weston executive complicit in its widespread operational and strategic debacles is just the latest stick in the eye from a board that has completely failed shareholders,” Jana Partners said. “Enough is enough: Lamb Weston requires significant board change or, in its absence, should be sold.”