Dive Brief:
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Lamb Weston posted a 4% increase in net sales to $824.6 million during its second quarter and a 11% rise in income from the year-ago period to about $140 million. The company's foodservice segment grew by 9% to $272.8 million. Sales in its retail division rose 6% to $102 million.
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The maker of potato products said it expects net sales to increase by mid-single digits during its fiscal year, up from a previous estimate of low- to mid-single digits. Adjusted earnings before interest, taxes, depreciation and amortization, including unconsolidated joint ventures, are expected to be $780 million to $790 million, up from a previous estimate of $740 million to $760 million.
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“With our solid first half performance and some key milestones now behind us, we have better clarity on how we see the rest of the year unfolding,” Tom Werner, president and CEO, said in a statement. “We expect growth in demand to continue not just through fiscal 2018, but also for the foreseeable future.”
Dive Insight:
The Eagle, Idaho-based company, which was part of Conagra until November 2016, supplies frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers. Two of its largest customers are McDonald's and Yum! Brands — owner of the KFC, Pizza Hut and Taco Bell fast-food chains.
Due to its commercial contracts and the continuing demand for french fries in North America and Asia, Lamb Weston's CEO said he anticipates growth in demand to continue through the rest of 2018 and into the future. To meet that growth, Lamb Weston invested $200 million to expand production capacity by 300 million pounds at its plant in Richland, Washington. It also announced a $250-million production line expansion in Hermiston, Oregon, which will add another 300 million pounds of capacity.
According to Markets Insider, the global potato processing market is projected to reach $32.4 billion by 2023, with a compound annual growth rate of 7.3%. Driving the demand are consumer preferences for convenience foods and snacks easily available through fast-food and retail channels. However, high storage and transportation costs, plus health concerns related to processed potato consumption, are factors hindering market growth, the report noted.
Lamb Weston has been viewed as a takeover or merger target. Post Holdings met with Conagra in 2016 to discuss a possible merger with Lamb Weston before the latter was spun off as an independent company. At the time, Lamb Weston was valued at about $6 billion. Given its strong performance in a niche market, the acquisition talk could resurface, or perhaps Lamb Weston will start looking for complementary companies to acquire.
Meanwhile, in its fifth earnings report since becoming a standalone company, Lamb Weston continues to report steady growth. And since demand for its products shows no signs of abating, future sales and earnings potential look to be on a steady course. That could prove enticing for a bigger company looking to stoke earnings and expand its space in convenience foods and snacks.