Here’s Why Lamb Weston Stock Sank Today

What happened

Shares of Lamb Weston Holdings (NYSE:LW) slumped 13.5% today. The stock lost ground despite the company delivering better-than-expected results for the fourth quarter. 

LW Chart

LW data by YCharts.

The specialist in frozen potato products posted adjusted earnings per share of $0.44 on sales of $1.01 billion in the fourth quarter. These results came in significantly ahead of the average analyst estimate’s call for EPS of $0.42 on revenue of $924.4 million, but the company’s guidance for the current fiscal year appears to have spooked investors.

French fries and salt.

Image source: Getty Images.

So what

Lamb Weston’s fourth-quarter results were pretty solid in many respects. Sales were up roughly 19.3% year over year, and net income came in at $66 million — up from a loss of $2 million in the prior-year period. The business is showing clear signs of recovery from the worst of last year’s pandemic-related challenges, but management also cautioned about inflationary pressures and issued underwhelming sales guidance.

The company currently expects sales growth for the current fiscal year in the low to mid single digits. Analysts polled prior to the fourth-quarter release expected the company to post revenue growth of 10.9% in the current fiscal year.

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Now what

Lamb Weston is seeing significant inflationary pressures, with rising prices for edible oil and packaging costs in particular presenting challenges. The company will respond with price increases across its product catalog, but its sales-growth target for the year still came in substantially below the market’s expectations. Lamb Weston also recently announced that it would be investing $415 million in facility upgrades, so near-term earnings might be pressured as the company pursues infrastructure projects and faces inflationary headwinds. 

Lamb Weston has a market capitalization of roughly $11.1 billion and is valued at approximately 2.8 times this year’s expected sales and 24.4 times expected earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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