Dive Brief:
- Activist investor Starboard Value is demanding Lamb Weston double its cost-cutting targets as it argues the frozen french fry maker is overly burdened by operating expenses compared to its peers.
- Starboard wrote in a letter to Lamb Weston CEO Mike Smith that the company should target $500 million in cost savings, doubling its previous target of $250 million, with the majority coming from overhead expenses.
- The letter also asks Lamb Weston to consider selling certain businesses in Asia. The requests come after the company reached a separate agreement with Jana Partners last summer that gave the activist investor a larger presence on the board.
Dive Insight:
Activist investors have become louder in demanding that food and beverage companies turn around their sales as it becomes clearer that consumer spending won't pick up anytime soon.
PepsiCo and J.M. Smucker are among companies who have announced deals with activist investors in the past six months. PepsiCo agreed to reduce product offerings and focus on affordability, while J.M. Smucker added two members to the board.
In its letter to Lamb Weston, Starboard argues the company needs to do more to "catch up" to peers such as Tyson and Hormel. Lamb Weston, which supplies frozen french fries to restaurants like McDonald's, has faced flattening sales as cash-strapped diners stay home.
Starboard believes the company could do more to grow profits, especially as Lamb Weston begins to report signs of recovery under Smith, who took the CEO role in January 2025.
"In our view, a $500 million total cost reduction program is both achievable and necessary to ensure that margin expansion reflects not only improved industry conditions, but also durable structural discipline," Starboard wrote.
The Wall Street Journal reported that Starboard has built a large stake in Lamb Weston and is now one of the frozen french fry maker's largest shareholders. Starboard has also bought a stake in beverage giant Keurig Dr Pepper following its $18 billion acquisition of JDE Peet's, Reuters reported.
