Lamb Weston Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended May 29, 2022 (52 weeks); comparisons are primarily with the year ended May 30, 2021. Lamb Weston produces and sells value-added frozen potato products, principally french fries, through Global, Foodservice, Retail and Other segments.
Key financial results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $4,098.9 million | $3,670.9 million | Up 12% |
| Gross profit | $832.0 million | $832.0 million | Flat |
| Income from operations | $444.4 million | $474.8 million | Down 6% |
| Net income | $200.9 million | $317.8 million | Down 37% |
| Diluted EPS | $1.38 | $2.16 | Down 36% |
| Adjusted net income | $304.1 million | $317.8 million | Down 4% |
| Adjusted diluted EPS | $2.08 | $2.16 | Down 4% |
| Operating cash flow | $418.1 million | $553.2 million | Down 24% |
Price/mix rose 9% and volume rose 3%. Higher restaurant and foodservice shipments in North America supported growth, partly offset by lower exports and Retail shipments. Gross margin was approximately 20.3% of sales, versus 22.7% in FY2021; higher price/mix was offset by inflation, crop-related costs and operating constraints. Operating margin was approximately 10.8%, versus 12.9%.
Segment sales: Global $2,064.2 million (up 8%); Foodservice $1,318.2 million (up 30%); Retail $594.6 million (down 1%); Other $121.9 million (down 12%). Foodservice contribution margin increased 32%, while Global’s declined 18% and Retail’s declined 9%.
Cash and cash equivalents were $525.0 million at year-end, with $994.6 million available under the revolving credit facility and no revolver borrowings. Debt and financing obligations totaled $2,752.0 million gross, including $2,745.0 million of debt principal; the balance sheet recorded $2,728.0 million of long-term debt including current portion. Current assets were $1,659.6 million and current liabilities were $699.1 million. Capital expenditures were $290.1 million. Cash returned to shareholders included $138.4 million of dividends and $150.7 million of share repurchases.
Material changes and unusual items
- Revenue increased on pricing, favorable mix and recovering North American foodservice demand, but gross profit remained flat as manufacturing and distribution costs rose.
- Net income included a $62.7 million non-cash impairment of the company’s share of its European joint venture’s Russian investment following the joint venture’s planned withdrawal from Russia.
- A $53.3 million debt-extinguishment loss (including a $39.6 million call premium and $13.7 million write-off of debt issuance costs) followed redemption of the 2024 and 2026 notes and issuance of $970 million of 2030 notes and $700 million of 2032 notes. The refinancing extended maturities and reduced the weighted-average interest rate, excluding the one-time charge.
- Operating cash flow fell $135.1 million, mainly due to $130.4 million of unfavorable working-capital changes, including higher receivables and inventories and lower accounts payable.
Outlook, risks and other disclosures
- For FY2023, management expected higher price/mix from pricing actions and volume growth as U.S. demand continued to recover, subject to production capacity and logistics constraints. Demand and volume could be volatile as consumers respond to inflation.
- Management expected first-half FY2023 gross margins to face pressure from inflation, higher per-pound potato costs following the poor 2021 Pacific Northwest crop, labor shortages and commodity supply constraints. Second-half improvement depended on a more typical 2022 crop, effective pricing and easing labor and logistics pressures.
- FY2023 capital expenditures were forecast at approximately $475 million to $525 million, for expansion and modernization in Idaho, a new China facility, and information technology and ERP investments. Capital commitments at year-end were $304.7 million.
- Major risks include commodity and labor inflation, potato crop yield and quality, supply-chain and freight disruptions, customer concentration (McDonald’s represented about 10% of FY2022 sales), international and geopolitical exposure, competition, and execution of capital projects. The filing also discusses COVID-19-related uncertainty, the war in Ukraine, cybersecurity and ERP implementation risks.
- In July 2022, after year-end, Lamb Weston acquired an additional 40% of its Argentina joint venture for approximately $42 million, bringing ownership to 90%; it expects to consolidate the venture’s results.
- The company reported compliance with its debt covenants and said it expected available liquidity to meet projected needs for the next 12 months. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Investor facts to verify
- Whether pricing actions keep pace with input, labor, transportation and potato costs without materially reducing volume.
- FY2023 crop quality and production run-rates, and whether capacity and shipping constraints ease as management anticipated.
- Progress, cost and timing of the Idaho and China expansion projects and the next ERP implementation phase.
- The effect of the Russia-related impairment and debt refinancing on reported versus adjusted earnings, interest costs and future cash flow.
- Liquidity, debt maturities and covenant headroom alongside planned capital spending, dividends and share repurchases.
- Post-acquisition consolidation of LWAMSA and its impact on reported sales, earnings, cash flow and debt.