10-Q 1 lw-20231126x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 26, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 1-37830

Graphic

LAMB WESTON HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

61-1797411

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

599 S. Rivershore Lane
Eagle, Idaho

 

83616

(Address of principal executive offices)

 

(Zip Code)

(208) 938-1047

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

LW

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

As of December 28, 2023, the Registrant had 144,372,498 shares of common stock, par value $1.00 per share, outstanding.

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited)

Consolidated Statements of Earnings

3

Consolidated Statements of Comprehensive Income

4

Consolidated Balance Sheets

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Condensed Notes to Consolidated Financial Statements (Unaudited)

8

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4

Controls and Procedures

29

Part II. OTHER INFORMATION

29

Item 1

Legal Proceedings

29

Item 1A

Risk Factors

30

Item 2

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

30

Item 3

Defaults Upon Senior Securities

30

Item 4

Mine Safety Disclosures

30

Item 5

Other Information

30

Item 6

Exhibits

31

Signature

32

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Lamb Weston Holdings, Inc.

Consolidated Statements of Earnings

(unaudited, in millions, except per share amounts)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

    

November 26,

    

November 27,

    

November 26,

    

November 27,

2023

2022

2023

2022

Net sales

$

1,732.1

$

1,276.5

$

3,397.4

$

2,402.1

Cost of sales

1,256.5

894.9

2,422.3

1,747.2

Gross profit

475.6

381.6

975.1

654.9

Selling, general and administrative expenses

170.0

109.8

346.2

226.1

Income from operations

305.6

271.8

628.9

428.8

Interest expense, net

29.1

24.6

59.8

50.6

Income before income taxes and equity method earnings

 

276.5

 

247.2

 

569.1

 

378.2

Income tax expense

66.2

36.8

136.1

110.5

Equity method investment earnings (loss)

4.7

(107.3)

16.8

67.3

Net income

$

215.0

$

103.1

$

449.8

$

335.0

Earnings per share:

Basic

$

1.48

$

0.72

$

3.10

$

2.33

Diluted

$

1.48

$

0.71

$

3.08

$

2.32

Weighted average common shares outstanding:

Basic

144.9

144.0

145.3

144.0

Diluted

145.5

144.6

146.0

144.6

See Condensed Notes to Consolidated Financial Statements.

3

Lamb Weston Holdings, Inc.

Consolidated Statements of Comprehensive Income

(unaudited, in millions)

Thirteen Weeks Ended

Thirteen Weeks Ended

November 26, 2023

November 27, 2022

Tax

Tax 

Pre-Tax

(Expense)

After-Tax

Pre-Tax 

(Expense) 

After-Tax 

    

Amount

    

Benefit

    

Amount

    

Amount

    

Benefit

    

Amount

Net income

$

281.2

$

(66.2)

$

215.0

$

139.9

$

(36.8)

$

103.1

Other comprehensive income (loss):

  

Unrealized pension and post-retirement benefit obligations loss

(0.2)

0.1

(0.1)

 

 

Unrealized currency translation gains (losses)

30.5

(0.7)

29.8

(16.1)

0.5

 

(15.6)

Other

(0.2)

(0.2)

0.3

(0.1)

0.2

Comprehensive income

$

311.3

$

(66.8)

$

244.5

$

124.1

$

(36.4)

$

87.7

Twenty-Six Weeks Ended

Twenty-Six Weeks Ended

November 26, 2023

November 27, 2022

Tax

Tax 

Pre-Tax

(Expense)

After-Tax

Pre-Tax 

(Expense) 

After-Tax 

    

Amount

    

Benefit

    

Amount

    

Amount

    

Benefit

    

Amount

Net income

$

585.9

$

(136.1)

$

449.8

$

445.5

$

(110.5)

$

335.0

Other comprehensive income (loss):

 

  

 

  

 

 

  

Unrealized pension and post-retirement benefit obligations loss

 

(0.4)

 

0.1

 

(0.3)

 

 

 

Unrealized currency translation gains (losses)

 

31.3

 

(0.3)

 

31.0

 

(47.8)

 

1.5

 

(46.3)

Other

(0.2)

(0.2)

0.5

(0.1)

0.4

Comprehensive income

$

616.6

$

(136.3)

$

480.3

$

398.2

$

(109.1)

$

289.1

See Condensed Notes to Consolidated Financial Statements.

4

Lamb Weston Holdings, Inc.

Consolidated Balance Sheets

(unaudited, in millions, except share data)

November 26,

May 28,

    

2023

    

2023

ASSETS

 

 

  

  

Current assets:

 

 

  

  

Cash and cash equivalents

 

$

78.3

$

304.8

Receivables, less allowance for doubtful accounts of $2.4 and $2.6

 

766.2

 

724.2

Inventories

 

1,153.6

 

932.0

Prepaid expenses and other current assets

 

82.8

 

166.2

Total current assets

 

2,080.9

 

2,127.2

Property, plant and equipment, net

 

3,173.6

 

2,808.0

Operating lease assets

140.0

146.1

Goodwill

 

1,065.1

 

1,040.7

Intangible assets, net

 

109.1

 

110.2

Other assets

 

476.6

 

287.6

Total assets

$

7,045.3

$

6,519.8

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

  

 

  

Short-term borrowings

$

294.3

$

158.5

Current portion of long-term debt and financing obligations

55.0

55.3

Accounts payable

 

834.5

 

636.6

Accrued liabilities

 

434.0

 

509.8

Total current liabilities

 

1,617.8

 

1,360.2

Long-term liabilities:

Long-term debt and financing obligations, excluding current portion

 

3,252.5

 

3,248.4

Deferred income taxes

260.3

252.1

Other noncurrent liabilities

 

247.0

 

247.8

Total long-term liabilities

3,759.8

3,748.3

Commitments and contingencies

Stockholders’ equity:

 

  

 

  

Common stock of $1.00 par value, 600,000,000 shares authorized; 150,694,839 and 150,293,511 shares issued

 

150.7

 

150.3

Treasury stock, at cost, 6,326,519 and 4,627,828 common shares

(479.4)

(314.3)

Additional distributed capital

 

(535.9)

 

(558.6)

Retained earnings

 

2,528.6

 

2,160.7

Accumulated other comprehensive income (loss)

 

3.7

 

(26.8)

Total stockholders’ equity

1,667.7

1,411.3

Total liabilities and stockholders’ equity

$

7,045.3

$

6,519.8

See Condensed Notes to Consolidated Financial Statements.

5

Lamb Weston Holdings, Inc.

Consolidated Statements of Stockholders’ Equity
(unaudited, in millions, except share data)

Thirteen Weeks Ended November 26, 2023 and November 27, 2022

    

    

Additional 

    

    

Accumulated 

    

Common Stock,

Common

Treasury

Paid-in

Other 

 Total 

net of Treasury

Stock

Stock

(Distributed)

Retained

Comprehensive 

Stockholders’

Shares

    

Amount

    

Amount

Capital

    

Earnings

    

Income (Loss)

    

 Equity

Balance at August 27, 2023

144,926,900

$

150.7

$

(427.8)

$

(548.7)

$

2,354.6

$

(25.8)

  

$

1,503.0

Dividends declared, $0.280 per share

(40.4)

(40.4)

Common stock issued

15,679

(0.2)

(0.2)

Stock-settled, stock-based compensation expense

12.3

12.3

Repurchase of common stock and common stock withheld to cover taxes

(574,259)

(50.8)

(50.8)

Other

(0.8)

0.7

(0.6)

(0.7)

Comprehensive income

 

215.0

29.5

244.5

Balance at November 26, 2023

144,368,320

$

150.7

$

(479.4)

$

(535.9)

$

2,528.6

$

3.7

$

1,667.7

Balance at August 28, 2022

143,830,587

$

148.3

$

(297.1)

$

(796.9)

$

1,501.8

$

(46.1)

$

510.0

Dividends declared, $0.245 per share

(35.3)

(35.3)

Common stock issued

44,008

1.1

1.1

Stock-settled, stock-based compensation expense

10.0

10.0

Repurchase of common stock and common stock withheld to cover taxes

(4,286)

(0.4)

(0.4)

Other

0.3

(0.4)

(0.1)

Comprehensive income (loss)

103.1

(15.4)

87.7

Balance at November 27, 2022

143,870,309

$

148.3

$

(297.5)

$

(785.5)

$

1,569.2

$

(61.5)

$

573.0

Twenty-Six Weeks Ended November 26, 2023 and November 27, 2022

    

    

Additional 

    

    

Accumulated 

    

Common Stock,

Common

Treasury

Paid-in

Other 

 Total 

net of Treasury

Stock

Stock

(Distributed)

Retained

Comprehensive 

Stockholders’

Shares

    

Amount

    

Amount

Capital

    

Earnings

    

Income (Loss)

    

 Equity

Balance at May 28, 2023

145,665,683

$

150.3

$

(314.3)

$

(558.6)

$

2,160.7

  

$

(26.8)

$

1,411.3

Dividends declared, $0.560 per share

(81.2)

(81.2)

Common stock issued

401,328

0.4

(0.2)

0.2

Stock-settled, stock-based compensation expense

22.2

22.2

Repurchase of common stock and common stock withheld to cover taxes

(1,698,691)

(164.3)

(164.3)

Other

(0.8)

0.7

(0.7)

(0.8)

Comprehensive income

 

449.8

30.5

480.3

Balance at November 26, 2023

144,368,320

$

150.7

$

(479.4)

$

(535.9)

$

2,528.6

$

3.7

$

1,667.7

Balance at May 29, 2022

144,071,428

$

148.0

$

(264.1)

$

(813.3)

$

1,305.5

$

(15.6)

$

360.5

Dividends declared, $0.490 per share

(70.5)

(70.5)

Common stock issued

285,399

0.3

1.3

1.6

Stock-settled, stock-based compensation expense

17.6

17.6

Repurchase of common stock and common stock withheld to cover taxes

(486,518)

(33.4)

(33.4)

Other

8.9

(0.8)

8.1

Comprehensive income (loss)

335.0

(45.9)

289.1

Balance at November 27, 2022

143,870,309

$

148.3

$

(297.5)

$

(785.5)

$

1,569.2

$

(61.5)

$

573.0

See Condensed Notes to Consolidated Financial Statements.

6

Lamb Weston Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited, in millions)

Twenty-Six Weeks Ended

    

November 26,

    

November 27,

2023

2022

Cash flows from operating activities

Net income

$

449.8

$

335.0

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of intangibles and debt issuance costs

140.7

102.0

Stock-settled, stock-based compensation expense

22.2

17.6

Equity method investment earnings in excess of distributions

(11.3)

(67.6)

Deferred income taxes

5.8

(6.8)

Foreign currency remeasurement gain

(0.1)

(16.8)

Other

(1.3)

(13.2)

Changes in operating assets and liabilities, net of acquisitions:

Receivables

(35.2)

(54.8)

Inventories

(216.0)

(240.1)

Income taxes payable/receivable, net

27.6

24.8

Prepaid expenses and other current assets

68.8

52.7

Accounts payable

96.1

140.6

Accrued liabilities

(91.9)

14.6

Net cash provided by operating activities

$

455.2

$

288.0

Cash flows from investing activities

Additions to property, plant and equipment

(507.6)

(232.9)

Additions to other long-term assets

(58.9)

(37.4)

Acquisition of interests in joint venture, net

(42.3)

Acquisition of business, net of cash acquired

(11.2)

Other

6.9

1.6

Net cash used for investing activities

$

(570.8)

$

(311.0)

Cash flows from financing activities

Proceeds from short-term borrowings, net

133.7

Proceeds from issuance of debt

 

28.4

23.3

Repayments of debt and financing obligations

(27.7)

(16.7)

Dividends paid

(81.6)

(70.6)

Repurchase of common stock and common stock withheld to cover taxes

(164.3)

(34.9)

Other

(0.5)

2.3

Net cash used for financing activities

$

(112.0)

$

(96.6)

Effect of exchange rate changes on cash and cash equivalents

1.1

14.0

Net decrease in cash and cash equivalents

 

(226.5)

 

(105.6)

Cash and cash equivalents, beginning of period

304.8

525.0

Cash and cash equivalents, end of period

$

78.3

$

419.4

See Condensed Notes to Consolidated Financial Statements.

7

Lamb Weston Holdings, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1.    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lamb Weston Holdings, Inc. (“we,” “us,” “our,” the “Company,” or “Lamb Weston”) is a leading global producer, distributor, and marketer of value-added frozen potato products and is headquartered in Eagle, Idaho. Beginning in fiscal 2024, in connection with our recent acquisitions and to align with our expanded global footprint, we began managing our operations in two reportable segments: North America and International. See Note 12, Segments, for additional information on our reportable segments.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements present the financial results of Lamb Weston and its consolidated subsidiaries for the thirteen and twenty-six weeks ended November 26, 2023 and November 27, 2022, and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”).

These consolidated financial statements are unaudited and include all adjustments that we consider necessary for a fair presentation of such financial statements and consist only of normal recurring adjustments. The preparation of financial statements involves the use of estimates and accruals. The actual results that we experience may differ materially from those estimates. Results for interim periods should not be considered indicative of results for our full fiscal year, which ends the last Sunday in May.

These financial statements and related condensed notes should be read together with the consolidated financial statements and notes in our Annual Report on Form 10-K for the fiscal year ended May 28, 2023 (the “Form 10-K”), where we include additional information on our critical accounting estimates, policies, and the methods and assumptions used in our estimates. We filed the Form 10-K with the Securities and Exchange Commission (“SEC”) on July 25, 2023.

Certain amounts from prior period consolidated financial statements have been reclassified to conform with current period presentation.

Accounting Pronouncements Not Yet Adopted

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s Disclosure Update and Simplification Initiative. The amendments in this update modify the disclosure or presentation requirements of a variety of Topics in the Accounting Standards Codification (“ASC”) in response to the SEC’s Release No. 33-10532, Disclosure Update and Simplification Initiative, and align the ASC’s requirements with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The ASU is effective for our Annual Report on Form 10-K for the fiscal year ending May 25, 2025, and subsequent interim periods, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

8

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on a prospective basis, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

There were no other accounting pronouncements recently issued that had or are expected to have a material impact on our consolidated financial statements.

 

 

 

2.    EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the periods presented:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

    

November 26,

    

November 27,

    

November 26,

    

November 27,

(in millions, except per share amounts)

2023

2022

2023

2022

Numerator:

 

  

 

  

 

  

 

  

Net income

$

215.0

$

103.1

$

449.8

$

335.0

Denominator:

 

  

 

  

 

  

 

  

Basic weighted average common shares outstanding

 

144.9

 

144.0

 

145.3

 

144.0

Add: Dilutive effect of employee incentive plans (a)

 

0.6

 

0.6

 

0.7

 

0.6

Diluted weighted average common shares outstanding

 

145.5

 

144.6

 

146.0

 

144.6

Earnings per share:

Basic

$

1.48

$

0.72

$

3.10

$

2.33

Diluted

$

1.48

$

0.71

$

3.08

$

2.32

(a)Potential dilutive shares of common stock under employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock units and performance awards. As of November 26, 2023, 0.7 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive. As of November 27, 2022, 0.6 million shares of stock-based awards were excluded from the computation of diluted earnings per share because they would be antidilutive.

 

 

 

3.    INCOME TAXES

Income tax expense for the thirteen and twenty-six weeks ended November 26, 2023 and November 27, 2022 was as follows:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

November 26,

November 27,

November 26,

November 27,

(in millions)

    

2023

2022

2023

2022

Income before income taxes and equity method earnings

$

276.5

$

247.2

$

569.1

$

378.2

Equity method investment earnings (loss)

4.7

(107.3)

16.8

67.3

Income tax expense

66.2

36.8

136.1

110.5

Effective tax rate (a)

23.5%

26.3%

23.2%

24.8%

(a)The effective income tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings. The effective tax rate varies from the U.S. statutory tax rate of 21% principally due to the impact of U.S. state taxes, foreign taxes and currency, permanent differences, and discrete items.

 

Income Taxes Paid

Income taxes paid, net of refunds, were $101.1 million and $92.1 million during the twenty-six weeks ended November 26, 2023 and November 27, 2022, respectively.

9

4.    INVENTORIES

Inventories are valued at the lower of cost (determined using the first-in, first-out method) or net realizable value and include all costs directly associated with manufacturing products: materials, labor, and manufacturing overhead. The components of inventories were as follows:

    

November 26,

May 28,

(in millions)

2023

    

2023

Raw materials and packaging

$

337.2

 

$

145.7

Finished goods

 

732.0

 

 

708.3

Supplies and other

 

84.4

 

 

78.0

Inventories

$

1,153.6

 

$

932.0

 

 

 

5.    PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows:

    

November 26,

May 28,

(in millions)

2023

    

2023

Land and land improvements

$

169.2

$

163.2

Buildings, machinery and equipment

 

3,915.0

 

3,576.6

Furniture, fixtures, office equipment and other

 

120.0

 

112.0

Construction in progress

 

972.5

 

832.0

Property, plant and equipment, at cost

 

5,176.7

 

4,683.8

Less accumulated depreciation

 

(2,003.1)

 

(1,875.8)

Property, plant and equipment, net

$

3,173.6

$

2,808.0

 

Depreciation expense was $66.5 million and $49.7 million for the thirteen weeks ended November 26, 2023 and November 27, 2022, respectively; and $132.4 million and $97.0 million for the twenty-six weeks ended November 26, 2023 and November 27, 2022, respectively. At November 26, 2023 and May 28, 2023, purchases of property, plant and equipment included in accounts payable were $188.7 million and $82.6 million, respectively.

Interest capitalized within construction in progress for the thirteen weeks ended November 26, 2023 and November 27, 2022, was $13.0 million and $4.1 million, respectively; and $23.5 million and $6.1 million for the twenty-six weeks ended November 26, 2023 and November 27, 2022, respectively.

6.    GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The following table presents changes in goodwill balances, by segment, for the twenty-six weeks ended November 26, 2023:

(in millions)

    

North America

    

International

    

Total

Balance at May 28, 2023 (a)

$

722.4

$

318.3

$

1,040.7

Acquisition

8.5

8.5

Foreign currency translation adjustment

10.1

5.8

 

15.9

Balance at November 26, 2023

$

732.5

$

332.6

$

1,065.1

(a)As a result of our change in segments, effective May 29, 2023, goodwill was reassigned to the North America and International segments based on relative fair value using a market-based approach. Before and after the reassignment of our goodwill, we completed impairment assessments and concluded there were no indications of impairment in our segments.  See Note 12, Segments, for more information related to the change in segments.  

 

10

Other identifiable intangible assets were as follows:

November 26, 2023

May 28, 2023

    

Weighted 

    

    

    

    

Weighted 

    

    

    

Average 

Gross 

Average 

 Gross 

Useful Life 

Carrying 

Accumulated 

Intangible

Useful Life 

Carrying 

 Accumulated 

Intangible

(in millions, except useful lives)

(in years)

Amount

Amortization

Assets, Net

(in years)

Amount

 Amortization

Assets, Net

Non-amortizing intangible assets (a)

  

n/a

$

18.0

  

$

  

$

18.0

  

n/a

  

$

18.0

  

$

  

$

18.0

Amortizing intangible assets (b)

  

14

  

124.2

  

(33.1)

  

91.1

  

14