Lamb Weston Reports Fiscal Second Quarter 2019 Results and Updates Full Year Outlook

January 4, 2019 ALE

Second Quarter 2019 Highlights

Net sales increased 11% to $911 million
Income from operations increased 24% to $174 million; Adjusted
Income from Operations⁽¹⁾ increased 21% to
$174 million
Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾
increased 18% to $223 million
Diluted EPS increased to $0.74 from $0.52, and includes a $0.10
benefit from a lower tax rate as a result of U.S. tax reform,
partially offset by a $0.06 decrease related to the acquisition of the
remaining interest in the Lamb Weston BSW joint venture
Adjusted Diluted EPS⁽¹⁾ increased to $0.80
from $0.54; and includes a $0.10 benefit from a lower tax rate as a
result of U.S. tax reform

Updated FY 2019 Outlook

Net sales expected to increase mid-to-high single digits, up from a
previous estimate of mid-single digits
Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾
expected to be $870 million-$880 million, up from a previous estimate
of $860 million-$870 million

Capital Deployment Highlights

Purchased partner’s interest in BSW joint venture
Acquired Australian potato processor
Increased quarterly dividend by 5%
Adopted $250 million share repurchase program

EAGLE, Idaho–(BUSINESS WIRE)–Lamb Weston Holdings, Inc. (NYSE: LW) announced today its fiscal second
quarter 2019 results and updated its full year outlook.

“We delivered another quarter of strong sales, earnings and cash flow
growth,” said Tom Werner, President and CEO. “We’re executing well
across the organization and continue to expect the operating environment
in North America to remain generally favorable for the remainder of
fiscal 2019. As we’ve previously indicated, while we anticipate
delivering solid sales and earnings results in the second half of fiscal
2019, our performance will moderate as we begin to lap strong prior year
results, face increased cost inflation, ramp up investments in
operating, sales and product innovation capabilities, and tackle the
challenges arising from a historically poor potato crop in Europe.
Despite these headwinds, due to our strong first half performance and
operating momentum, we have raised our annual outlook for sales growth
and EBITDA.”

“In addition, we’ve recently taken actions that we believe demonstrate
our balanced, returns-driven approach when deploying capital,” Werner
continued. “First, we completed the purchase of our partner’s interest
in our Lamb Weston BSW joint venture in December. Second, consistent
with our strategy to differentiate our global supply chain to drive
growth, we acquired a frozen potato processor in Australia, which will
provide us with additional capacity to serve our customers. Third, we
increased our quarterly dividend by approximately 5 percent, enabling us
to maintain a dividend payout range of 25 to 35 percent of Adjusted
Diluted EPS. And finally, we adopted a $250 million share repurchase
program designed to buy back stock on an opportunistic basis. We believe
these actions, along with our performance, show our commitment to
executing on our strategies to support customers, drive growth and
create value for our shareholders over the long term.”


Summary of Second Quarter FY 2019 Results
($ in millions, except per share)

			Year-Over-Year				Year-Over-Year
	Q2 2019		Growth Rates		YTD 2019		Growth Rates
Net sales	$	911.4	11	%	$	1,826.3	11	%
Income from operations	$	174.0	24	%	$	326.6	18	%
Net income attributable to Lamb Weston	$	119.0	55	%	$	226.8	42	%
Diluted EPS	$	0.74	42	%	$	1.47	36	%

Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾	$	222.8	18	%	$	435.7	15	%
Adjusted Diluted EPS⁽¹⁾	$	0.80	48	%	$	1.53	38	%

Q2 2019 Commentary

Net sales were $911.4 million, up 11 percent versus the year-ago period.
Price/mix increased 6 percent due to pricing actions and favorable mix.
Volume increased 5 percent, driven by growth in the Company’s Global and
Retail segments.

Income from operations rose 24 percent to $174.0 million from the prior
year period, which included $4.0 million of pre-tax costs in the prior
year period related to the Company’s separation from Conagra Brands,
Inc. (formerly ConAgra Foods, Inc., “Conagra”) on November 9, 2016.

Excluding this comparability item, income from operations grew $30.2
million, or 21 percent, driven by higher sales and gross profit. Gross
profit increased $40.8 million due to favorable price/mix, volume growth
and supply chain efficiency savings. This increase was partially offset
by transportation, warehousing, input and manufacturing cost inflation.
In addition, gross profit included a $1.7 million loss related to
unrealized mark-to-market adjustments and realized settlements
associated with commodity hedging contracts in the current quarter,
compared with a $0.6 million loss related to these items in the prior
year period.

The rise in gross profit was partially offset by a $10.6 million
increase in selling, general and administrative expenses (“SG&A”),
excluding comparability items. The increase was largely driven by higher
expenses related to information technology services and infrastructure,
as well as investments in the Company’s sales, marketing and operating
capabilities. The increase in SG&A also includes approximately $2
million of unfavorable foreign exchange, which was more than offset by
an approximately $4 million benefit from an insurance settlement.

Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾
was $222.8 million, up 18 percent versus the prior year period,
primarily due to growth in income from operations.

Diluted EPS increased $0.22, or 42 percent, to $0.74, which included a
$0.10 benefit related to a lower U.S. corporate tax rate as a result of
the U.S. Tax Cuts and Jobs Act (the “Tax Act ”) enacted in December
2017, partially offset by a $0.06 decrease related to the acquisition of
the remaining interest of the Company’s Lamb Weston BSW, LLC (“Lamb
Weston BSW”) joint venture. The remaining increase in diluted EPS
reflects growth in income from operations.

Adjusted Diluted EPS⁽¹⁾ increased $0.26, or 48 percent, to
$0.80, which included a $0.10 benefit related to a lower U.S. corporate
tax rate as a result of the Tax Act. The remaining increase in Adjusted
Diluted EPS reflects growth in income from operations.

The Company’s effective tax rate⁽²⁾ in the second quarter of
fiscal 2019 was 21.5 percent. The lower rate in the second quarter of
fiscal 2019 versus 33.3 percent in the prior year period is primarily
attributable to the effects of the Tax Act, as well as the benefit of
foreign-related discrete items.

Q2 2019 Segment Highlights

Global


Global Segment Summary

			Year-Over-Year
		Q2 2019	Growth Rates		Price/Mix		Volume
		($ in mil.)
Net sales	$	470.0	13	%	7	%	6	%
Segment product contribution margin⁽¹⁾	$	112.4	28	%

Net sales for the Global segment, which is comprised of the top 100
North American based restaurant chain customers as well as the Company’s
international business, increased to $470.0 million, up 13 percent
compared to the prior year period. Price/mix increased 7 percent,
reflecting the carryover impact of pricing actions taken in the prior
year as well as improved mix. Volume increased 6 percent, driven by
growth in sales to strategic customers in the U.S. and key international
markets, as well as the benefit of limited time product offerings.

Global segment product contribution margin⁽¹⁾ increased to
$112.4 million, up 28 percent compared to the prior year period.
Favorable price/mix, volume growth and supply chain efficiency savings
drove the increase, which was partially offset by transportation,
warehousing, input and manufacturing cost inflation.

Foodservice


Foodservice Segment Summary

			Year-Over-Year
		Q2 2019	Growth Rates		Price/Mix		Volume
		($ in mil.)
Net sales	$	279.7	3	%	5	%	(2	%)
Segment product contribution margin⁽¹⁾	$	97.4	6	%

Net sales for the Foodservice segment, which services North American
foodservice distributors and restaurant chains outside the top 100 North
American based restaurant chain customers, increased to $279.7 million,
up 3 percent compared to the prior year period. Price/mix increased 5
percent, reflecting the carryover impact of pricing actions taken in the
prior year as well as improved mix. Volume declined 2 percent largely
due to the loss of some lower-margin volume, partially offset by growth
of sales of higher-margin products.

Foodservice segment product contribution margin⁽¹⁾ increased
to $97.4 million, up 6 percent compared to the prior year period, driven
by favorable price, improved mix and supply chain efficiency savings,
partially offset by transportation, warehousing, input and manufacturing
cost inflation.

Retail


Retail Segment Summary

			Year-Over-Year
		Q2 2019	Growth Rates		Price/Mix		Volume
		($ in mil.)
Net sales	$	123.9	21	%	5	%	16	%
Segment product contribution margin⁽¹⁾	$	25.9	34	%

Net sales for the Retail segment, which includes sales of branded and
private label products to grocery, mass merchant and club customers in
North America, increased to $123.9 million, up 21 percent compared to
the prior year period. Volume increased 16 percent, primarily driven by
distribution gains of Grown in Idaho and other branded products,
as well as private label products. Price/mix increased 5 percent, due to
higher prices across the branded and private label portfolios, as well
as improved mix.

Retail segment product contribution margin⁽¹⁾ increased to
$25.9 million, up 34 percent compared to the prior year period, due to
higher price/mix, volume growth and supply chain efficiency savings. The
increase was partially offset by transportation, warehousing, input and
manufacturing cost inflation.

Equity Method Investment Earnings

Equity method investment earnings from unconsolidated joint ventures in
the U.S. and Europe were $10.2 million and $12.1 million for the second
quarter of fiscal 2019 and 2018, respectively. These amounts included a
$1.1 million unrealized loss related to mark-to-market adjustments
associated with currency and commodity hedging contracts in the current
quarter and a $3.1 million loss related to these items in the prior year
quarter. Excluding these adjustments, earnings from equity method
investments declined $3.9 million compared to the prior year period,
largely reflecting higher raw potato prices associated with a poor crop
in Europe, partially offset by higher price/mix and volume growth in
both Europe and the U.S.

Outlook

The Company updated its outlook for fiscal year 2019 as follows:


FY 2019 Outlook Summary

Net sales growth rate				Mid-to-High Single Digit Range


Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾				$870 million-$880 million


Interest expense				Approximately $110 million


Effective tax rate⁽²⁾ excluding comparability items				Approximately 23%


Cash used for capital expenditures				Approximately $360 million

As summarized in the table above, the Company expects:

Net sales to grow mid-to-high single digits, with price/mix higher in
the first half of fiscal 2019 versus the second half of the fiscal
year, reflecting the carryover impact of customer contract pricing
structures that took effect beginning in the second half of fiscal
2018. The Company’s previous estimate was for net sales to grow
mid-single digits.
Adjusted EBITDA including unconsolidated joint ventures⁽¹⁾
in the range of $870 million to $880 million, an increase from the
Company’s previous estimate of $860 million to $870 million. For
fiscal 2019, the Company expects:
- The rate of gross profit dollar growth to be at least in line with
  net sales growth.
- To incur significantly higher SG&A as it invests to upgrade its
  information systems and enterprise resource planning
  infrastructure, as well as sales, marketing, innovation,
  operations and other functional capabilities, designed to drive
  operating efficiencies and support future growth.
- Equity method investment earnings to decline versus the prior
  year, reflecting the effect of significantly higher raw potato
  prices in Europe.
- The range also includes the impact of the Company exercising its
  contractual right to purchase the remaining 50.01% equity interest
  in its joint venture, Lamb Weston BSW, that it did not own. While
  the transaction closed in December 2018, the Company ceased
  recording a noncontrolling interest in the Lamb Weston BSW joint
  venture on its Consolidated Statement of Earnings as of November
  2, 2018, the date on which the Company entered into a definitive
  agreement to purchase the interest.

In addition, the Company expects:

Total interest expense to be approximately $110 million.
An effective tax rate⁽²⁾ of approximately 23 percent, down
from the Company’s previous estimate of approximately 24 percent.
Cash used for capital expenditures of approximately $360 million.
Total depreciation and amortization expense of approximately $150
million.

End Notes

(1)					Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Diluted EPS and segment product contribution margin are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures, including a discussion of earnings guidance provided on a non-GAAP basis, and the reconciliations at the end of this press release for more information.

(2)					The effective tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Webcast and Conference Call Information

Lamb Weston will host a conference call to review its second quarter
2019 results at 10:00 a.m. ET today. Investors and analysts may access
the call toll-free by dialing (888) 394-8218, and using the event
confirmation code of 8861817. A listen-only webcast will be provided at www.lambweston.com.

About Lamb Weston

Lamb Weston, along with its joint venture partners, is a leading
supplier of frozen potato, sweet potato, appetizer and vegetable
products to restaurants and retailers around the world. For more than 60
years, Lamb Weston has led the industry in innovation, introducing
inventive products that simplify back-of-house management for its
customers and make things more delicious for their customers. From the
fields where Lamb Weston potatoes are grown to proactive customer
partnerships, Lamb Weston always strives for more and never settles.
Because, when we look at a potato, we see possibilities. Learn more
about us at lambweston.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the federal securities laws. Words such as “execute,”
“deliver,” “continue,” “expect,” “drive,” “support,” “grow,” “will,”
“face,” “anticipate,” “provide,” “mitigate,” “create,” and variations of
such words and similar expressions are intended to identify
forward-looking statements. Examples of forward-looking statements
include, but are not limited to, statements regarding the Company’s
plans, execution, and business outlook and prospects. These
forward-looking statements are based on management’s current
expectations and are subject to uncertainties and changes in
circumstances. Readers of this press release should understand that
these statements are not guarantees of performance or results. Many
factors could affect the Company’s actual financial results and cause
them to vary materially from the expectations contained in the
forward-looking statements, including those set forth in this press
release. These risks and uncertainties include, among other things: the
Company’s ability to successfully execute its long-term value creation
strategies; its ability to execute on large capital projects, including
construction of new production lines; the competitive environment and
related conditions in the markets in which it and its joint ventures
operate; political and economic conditions of the countries in which it
and its joint ventures conduct business and other factors related to its
international operations; disruption of its access to export mechanisms;
risks associated with possible acquisitions, including its ability to
complete acquisitions or integrate acquired businesses; its debt levels;
the availability and prices of raw materials; changes in its
relationships with its growers or significant customers; the success of
its joint ventures; actions of governments and regulatory factors
affecting its businesses or joint ventures; the ultimate outcome of
litigation or any product recalls; levels of pension, labor and
people-related expenses; its ability to pay regular quarterly cash
dividends and the amounts and timing of any future dividends; and other
risks described in the Company’s reports filed from time to time with
the Securities and Exchange Commission. The Company cautions readers not
to place undue reliance on any forward-looking statements included in
this press release, which speak only as of the date of this press
release. The Company undertakes no responsibility for updating these
statements, except as required by law.

Non-GAAP Financial Measures

To supplement the financial information included in this press release,
the Company has presented Adjusted Income from Operations, Adjusted
EBITDA including unconsolidated joint ventures, Adjusted Net Income
Available to Lamb Weston Common Stockholders, Adjusted Diluted EPS, and
segment product contribution margin, each of which is considered a
non-GAAP financial measure. The non-GAAP financial measures provided
should be viewed in addition to, and not as an alternative for,
financial measures prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) that are
presented in this press release. The non-GAAP financial measures
presented may differ from similarly titled non-GAAP financial measures
presented by other companies, and other companies may not define these
non-GAAP financial measures the same way. These measures are not
substitutes for their comparable GAAP financial measures, such as net
income, diluted earnings per share, cash flow from operations, or other
measures prescribed by GAAP, and there are limitations to using non-GAAP
financial measures.

Management uses these non-GAAP financial measures to assist in comparing
the Company’s performance on a consistent basis for purposes of business
decision making by removing the impact of certain items that management
believes do not directly reflect the Company’s underlying operations.
Management believes that presenting these non-GAAP financial measures
provides investors with useful information because they (i) provide
meaningful supplemental information regarding financial performance by
excluding certain items, (ii) permit investors to view performance using
the same tools that management uses to budget, make operating and
strategic decisions, and evaluate historical performance, and (iii)
otherwise provide supplemental information that may be useful to
investors in evaluating the Company’s results. The Company believes that
the presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provides investors with additional
understanding of the factors and trends affecting the Company’s business
than could be obtained absent these disclosures.

The Company also provides earnings guidance on a non-GAAP basis. The
Company cannot predict certain elements that are included in reported
GAAP results, including items such as strategic developments,
acquisition and integration costs, and other items impacting
comparability. This list is not inclusive of all potential items, and
the Company will update as necessary as these items are evaluated on an
ongoing basis, can be highly variable and could be significant to its
GAAP measures. As such, prospective quantification of these items is not
feasible and a full reconciliation of non-GAAP Adjusted EBITDA including
unconsolidated joint ventures to GAAP net income has not been provided.


Lamb Weston Holdings, Inc.
Consolidated Statements of Earnings
(unaudited, dollars in millions, except per-share amounts)

	Thirteen Weeks Ended (1)				Twenty-Six Weeks Ended (1)
	November 25,		November 26,		November 25,		November 26,
	2018 (2)		2017		2018 (2)		2017
Net sales	$	911.4	$	824.6	$	1,826.3	$	1,642.1
Cost of sales		662.4		616.4		1,346.7		1,237.6
Gross profit		249.0		208.2		479.6		404.5
Selling, general and administrative expenses (2)		75.0		68.4		153.0		127.1
Income from operations		174.0		139.8		326.6		277.4
Interest expense, net		26.2		27.4		53.0		52.6
Income before income taxes and equity method earnings		147.8		112.4		273.6		224.8
Income tax expense		34.0		41.5		68.3		85.6
Equity method investment earnings		10.2		12.1		30.1		32.1
Net income		124.0		83.0		235.4		171.3
Less: Income attributable to noncontrolling interests		5.0		6.4		8.6		11.3
Net income attributable to Lamb Weston Holdings, Inc.	$	119.0	$	76.6	$	226.8	$	160.0
Earnings per share
Basic	$	0.74	$	0.52	$	1.47	$	1.08
Diluted	$	0.74	$	0.52	$	1.47	$	1.08
Dividends declared per common share	$	0.19125	$	0.18750	$	0.38250	$	0.37500


Computation of diluted earnings per share:
Net income attributable to Lamb Weston Holdings, Inc.	$	119.0	$	76.6	$	226.8	$	160.0
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated (3)		10.0		0.5		10.9		1.3
Net income available to Lamb Weston common stockholders	$	109.0	$	76.1	$	215.9	$	158.7
Diluted weighted average common shares outstanding		147.4		146.9		147.3		146.8
Diluted earnings per share (3)	$	0.74	$	0.52	$	1.47	$	1.08

_________________
(1)				On May 28, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (new revenue standard), using the modified retrospective method. The Company recognized a $13.7 million cumulative effect of initially applying the new revenue standard as an adjustment to opening retained earnings. The new revenue standard did not have a significant impact on the Company’s results of operations. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2, Revenue from Contracts with Customers, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” in the Company’s fiscal 2019 second quarter Form 10-Q, for more information.

(2)				The thirteen and twenty-six weeks ended November 26, 2017, include $4.0 million and $6.2 million, respectively, of expenses related to the Company’s separation from Conagra Brands, Inc. These expenses related primarily to professional fees and other employee-related costs.

(3)				During the thirteen and twenty-six weeks ended November 25, 2018, net income available to common stockholders and earnings per share included accretion expense, net of estimated tax benefits, of $9.5 million, or $0.06, which the Company recorded to increase the redeemable noncontrolling interest to the amount the Company agreed to pay to acquire the remaining 50.01% interest in its Lamb Weston BSW joint venture. While the accretion, net of estimated tax benefits, reduced net income available to Lamb Weston common stockholders and earnings per share, it did not impact net income in the Consolidated Statements of Earnings. The thirteen and twenty-six weeks ended November 25, 2018, include 100% of Lamb Weston BSW’s earnings beginning November 2, 2018, the date the Company entered into the definitive agreement to acquire the remaining interest in Lamb Weston BSW. Additionally, the redeemable noncontrolling interest recorded on the balance sheet as of November 2, 2018 was reclassified to “Accrued liabilities”. See Note 9, Investments in Joint Ventures, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” in the Company’s fiscal 2019 second quarter Form 10-Q, for more information.

Contacts

For more information, please contact:
Investors:
Dexter
Congbalay
224-306-1535
dexter.congbalay@lambweston.com

Media:
Shelby Stoolman
208-424-5461
shelby.stoolman@lambweston.com

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