News Release

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

·

Net sales increased 7% to $927 million

·

Income from operations increased 15% to $194 million; Adjusted Income from Operations(1) increased 13% to $194 million

·

Adjusted EBITDA including unconsolidated joint ventures(1) increased 7% to $253 million

·

Diluted EPS decreased to $0.95 from $1.06, because diluted EPS for the third quarter 2018 included a $0.16 net benefit from discrete items attributable to U.S. tax reform

·

Adjusted Diluted EPS(1) increased to $0.95 from $0.91

·

Returned $36 million of cash to stockholders in the form of both dividends and share repurchases

·

Net sales expected to increase high single digits, up from a previous estimate of mid-to-high single digits

·

Adjusted EBITDA including unconsolidated joint ventures(1) expected to be $895  million-$905  million, up from a previous estimate of $870 million-$880 million

Summary of Third Quarter FY 2019 Results

($ in millions, except per share)

Year-Over-Year

Year-Over-Year

Q3 2019

Growth Rates

YTD 2019

Growth Rates

Net sales

$

926.8

7%

$

2,753.1

10%

Income from operations

$

193.8

15%

$

520.4

17%

Net income attributable to Lamb Weston

$

141.4

(10%)

$

368.2

16%

Diluted EPS

$

0.95

(10%)

$

2.42

13%

Adjusted EBITDA including unconsolidated joint ventures(1)

$

253.2

7%

$

688.9

11%

Adjusted Diluted EPS(1)

$

0.95

4%

$

2.48

23%

Global Segment Summary

Year-Over-Year

Q3 2019

Growth Rates

Price/Mix

Volume

($ in mil.)

Net sales

$

498.2

11%

2%

9%

Segment product contribution margin(1)

$

128.8

13%

Foodservice Segment Summary

Year-Over-Year

Q3 2019

Growth Rates

Price/Mix

Volume

($ in mil.)

Net sales

$

265.5

5%

4%

1%

Segment product contribution margin(1)

$

94.8

6%

Retail Segment Summary

Year-Over-Year

Q3 2019

Growth Rates

Price/Mix

Volume

($ in mil.)

Net sales

$

129.0

(1%)

1%

(2%)

Segment product contribution margin(1)

$

29.1

(4%)

FY 2019 Outlook Summary

Net sales growth rate

High Single Digits

Adjusted EBITDA including unconsolidated joint ventures(1)

$895 million to $905 million

Interest expense

Approximately $110 million

Effective tax rate(2) excluding comparability items

22% to 23%

Cash used for capital expenditures

Approximately $350 million

·

Net sales to grow high single digits. The Company’s previous estimate was for net sales to grow mid-to-high single digits.

·

Adjusted EBITDA including unconsolidated joint ventures(1) in the range of $895  million to $905 million, an increase from the Company’s previous estimate of $870 million to $880 million. For fiscal 2019, the Company expects:

o

The rate of gross profit dollar growth to be more than net sales growth.

o

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.

o

Equity method investment earnings to decline versus the prior year, reflecting the effect of significantly higher raw potato prices in Europe due to a poor crop.

o

An $8 million to $10 million benefit from the BSW Acquisition.  

·

Total interest expense to be approximately $110 million.

·

An effective tax rate(2) of 22 percent to 23 percent, down from the Company’s previous estimate of approximately 23 percent.

·

Cash used for capital expenditures of approximately $350 million.

·

Total depreciation and amortization expense of approximately $150 million.

(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.

Thirteen Weeks Ended (1)

Thirty-Nine Weeks Ended (1)

February 24,

February 25,

February 24,

February 25,

2019 (2)

2018

2019 (2)

2018

Net sales

$

926.8

$

863.4

$

2,753.1

$

2,505.5

Cost of sales

653.4

621.1

2,000.1

1,858.7

Gross profit

273.4

242.3

753.0

646.8

Selling, general and administrative expenses (2)

79.6

73.1

232.6

200.2

Income from operations

193.8

169.2

520.4

446.6

Interest expense, net

27.0

28.5

80.0

81.1

Income before income taxes and equity method earnings

166.8

140.7

440.4

365.5

Income tax expense

39.6

7.5

107.9

93.1

Equity method investment earnings

14.2

26.4

44.3

58.5

Net income

141.4

159.6

376.8

330.9

Less: Income attributable to noncontrolling interests

 —

2.8

8.6

14.1

Net income attributable to Lamb Weston Holdings, Inc.

$

141.4

$

156.8

$

368.2

$

316.8

Earnings per share

Basic

$

0.96

$

1.07

$

2.44

$

2.15

Diluted

$

0.95

$

1.06

$

2.42

$

2.14

Dividends declared per common share

$

0.20000

$

0.19125

$

0.58250

$

0.56625

Computation of diluted earnings per share:

Net income attributable to Lamb Weston Holdings, Inc.

$

141.4

$

156.8

$

368.2

$

316.8

Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated, net of tax benefits (3)

0.5

0.9

11.4

2.2

Net income available to Lamb Weston common stockholders

$

140.9

$

155.9

$

356.8

$

314.6

Diluted weighted average common shares outstanding

147.4

147.1

147.3

146.9

Diluted earnings per share (3)

$

0.95

$

1.06

$

2.42

$

2.14

(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 comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

(2)

The thirteen and thirty-nine weeks ended February 25, 2018, include $1.7 million and $7.9 million, respectively, of expenses related to the Company’s separation from Conagra. These expenses related primarily to professional fees and other employee-related costs.

(3)

The thirty-nine weeks ended February 24, 2019, included accretion, net of tax benefits, of $10.0 million, or $0.07 per share, which the Company recorded to increase the redeemable noncontrolling interest to the amount the Company paid to acquire the remaining 50.01% interest in Lamb Weston BSW. While the accretion, net of 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. Net income includes 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. See Note 10, 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 third quarter Form 10-Q, for more information.

February 24,

May 27,

2019 (1)

2018

ASSETS

Current assets:

Cash and cash equivalents

$

17.2

$

55.6

Receivables, less allowance for doubtful accounts of $0.7 and $0.6

359.3

225.9

Inventories

588.2

549.7

Prepaid expenses and other current assets

103.3

99.2

Total current assets

1,068.0

930.4

Property, plant and equipment, net

1,557.0

1,420.8

Goodwill

208.8

135.1

Intangible assets, net

38.3

35.4

Equity method investments

222.8

219.8

Other assets

16.3

11.1

Total assets

$

3,111.2

$

2,752.6

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Short-term borrowings

$

98.7

$

9.6

Current portion of long-term debt and financing obligations

37.4

38.7

Accounts payable

308.8

254.4

Accrued liabilities

221.7

216.0

Total current liabilities

666.6

518.7

Long-term liabilities:

Long-term debt, excluding current portion

2,288.6

2,336.7

Deferred income taxes

126.6

92.1

Other noncurrent liabilities

85.6

84.3

Total long-term liabilities

2,500.8

2,513.1

Commitments and contingencies

Redeemable noncontrolling interest

 —

55.6

Stockholders' equity:

Common stock of $1.00 par value, 600,000,000 shares authorized; 146,620,264 and 146,395,866 shares issued

146.6

146.4

Additional distributed capital

(896.8)

(900.4)

Retained earnings

722.5

426.4

Accumulated other comprehensive loss

(13.3)

(4.3)

Treasury stock, at cost, 236,774 and 63,534 common shares

(15.2)

(2.9)

Total stockholders' deficit

(56.2)

(334.8)

Total liabilities and stockholders’ equity

$

3,111.2

$

2,752.6

(1)

See footnote (1) to the Consolidated Statements of Earnings above for a discussion of the impact of adopting the new revenue standard.

Thirty-Nine Weeks Ended

February 24,

February 25,

2019

2018

Cash flows from operating activities

Net income

$

376.8

$

330.9

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

Depreciation and amortization of intangibles and debt issuance costs

117.5

104.1

Stock-settled, stock-based compensation expense

13.7

10.1

Earnings of joint ventures in excess of distributions

(9.0)

(22.0)

Deferred income taxes

38.5

(16.0)

Pension expense, net of contributions

5.6

4.2

Other

(1.5)

(6.7)

Changes in operating assets and liabilities, net of acquisition:

Receivables

(43.3)

(51.4)

Inventories

(104.7)

(105.4)

Income taxes payable/receivable, net

14.1

38.0

Prepaid expenses and other current assets

(7.0)

(11.5)

Accounts payable

51.6

31.6

Accrued liabilities

(7.9)

4.3

Net cash provided by operating activities

$

444.4

$

310.2

Cash flows from investing activities

Additions to property, plant and equipment

(244.2)

(204.4)

Acquisition of business, net of cash acquired

(88.6)

 —

Other

(1.1)

(2.4)

Net cash used for investing activities

$

(333.9)

$

(206.8)

Cash flows from financing activities

Proceeds from short-term borrowings, net

89.3

9.4

Debt repayments

(57.1)

(29.9)

Dividends paid

(84.0)

(82.2)

Acquisition of noncontrolling interest

(78.2)

 —

Repurchase of common stock and common stock withheld to cover taxes

(12.3)

(2.1)

Cash distributions paid to noncontrolling interest

(6.1)

(12.4)

Other

1.1

0.8

Net cash used for financing activities

$

(147.3)

$

(116.4)

Effect of exchange rate changes on cash and cash equivalents

(1.6)

5.3

Net decrease in cash and cash equivalents

(38.4)

(7.7)

Cash and cash equivalents, beginning of the period

55.6

57.1

Cash and cash equivalents, end of period

$

17.2

$

49.4

Thirteen Weeks Ended

Year-Over-

February 24,

February 25,

Year Growth

2019

2018

Rates

Price/Mix

Volume

Segment sales (1)

Global

$

498.2

$

448.7

11%

2%

9%

Foodservice

265.5

253.5

5%

4%

1%

Retail

129.0

130.2

(1%)

1%

(2%)

Other

34.1

31.0

10%

6%

4%

$

926.8

$

863.4

7%

3%

4%

Segment product contribution margin (1) (2)

Global

$

128.8

$

113.9

13%

Foodservice

94.8

89.5

6%

Retail

29.1

30.3

(4%)

Other

11.8

0.9

NM

264.5

234.6

13%

Other selling, general, and administrative expenses (3)

70.7

65.4

8%

Income from operations

$

193.8

$

169.2

15%

Items impacting comparability (3)

Expenses related to the Separation

$

 —

$

1.7

Adjusted income from operations (4)

$

193.8

$

170.9

13%

(1)

See footnote (1) to the Consolidated Statements of Earnings above for a discussion of the impact of adopting the new revenue standard.

(2)

Product contribution margin is defined as net sales, less cost of sales and advertising and promotion expenses. Segment product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period.

(3)

The thirteen weeks ended February 25, 2018 includes $1.7 million of expenses related to the Company’s separation from Conagra. These expenses related primarily to professional fees and other employee-related costs.

(4)

Adjusted income from operations is a non-GAAP financial measure. Management excludes items impacting comparability between periods as it believes these items are not necessarily reflective of the ongoing operations of the Company. This non-GAAP measure provides a means to evaluate the performance of Lamb Weston’s segments and the Company on an ongoing basis using the same measures that are frequently used by the Company’s management and assists in providing a meaningful comparison between periods. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. 

Thirty-Nine Weeks Ended

Year-Over-

February 24,

February 25,

Year Growth

2019

2018

Rates

Price/Mix

Volume

Segment sales (1)

Global

$

1,434.9

$

1,279.5

12%

6%

6%

Foodservice

843.0

805.8

5%

5%

0%

Retail

369.1

324.2

14%

6%

8%

Other

106.1

96.0

11%

9%

2%

$

2,753.1

$

2,505.5

10%

6%

4%

Segment product contribution margin (1) (2)

Global

$

335.6

$

275.9

22%

Foodservice

294.2

272.2

8%

Retail

77.8

66.1

18%

Other

24.0

16.0

50%

731.6

630.2

16%

Other selling, general, and administrative expenses (3)

211.2

183.6

15%

Income from operations

$

520.4

$

446.6

17%

Items impacting comparability (3)

Expenses related to the Separation

$

 —

$

7.9

Adjusted income from operations (4)

$

520.4

$

454.5

14%

(1)

See footnote (1) to the Consolidated Statements of Earnings above for a discussion of the impact of adopting the new revenue standard.

(2)

Product contribution margin is defined as net sales, less cost of sales and advertising and promotion expenses. Segment product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period.

(3)

The thirty-nine weeks ended February 25, 2018 includes $7.9 million of expenses related to the Company’s separation from Conagra. These expenses related primarily to professional fees and other employee-related costs.

(4)

Adjusted income from operations is a non-GAAP financial measure. Management excludes items impacting comparability between periods as it believes these items are not necessarily reflective of the ongoing operations of the Company. This non-GAAP measure provides a means to evaluate the performance of Lamb Weston’s segments and the Company on an ongoing basis using the same measures that are frequently used by the Company’s management and assists in providing a meaningful comparison between periods. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. 

Thirteen Weeks Ended February 24, 2019

Equity

Net Income

Net Income

Income

Income

Method

Attributable

Available to

From

Interest

Tax

Investment

to Lamb

Lamb Weston

Diluted

Operations

Expense

Expense

Earnings

Net Income

Weston

Stockholders

EPS

As reported

$

193.8

$

27.0

$

39.6

$

14.2

$

141.4

$

141.4

$

140.9

$

0.95

Items impacting comparability (1) (2):

Tax benefits related to increase in redemption value of noncontrolling interests

 —

 —

 —

 —

 —

 —

0.5

0.01

Transition tax adjustment (3)

 —

 —

1.0

 —

(1.0)

(1.0)

(1.0)

(0.01)

Total items impacting comparability

 —

 —

1.0

 —

(1.0)

(1.0)

(0.5)

 —

Adjusted (4)

$

193.8

$

27.0

$

40.6

$

14.2

$

140.4

$

140.4

$

140.4

$

0.95

Thirteen Weeks Ended February 25, 2018

Equity

Net Income

Net Income

Income

Income

Method

Attributable

Available to

From

Interest

Tax

Investment

to Lamb

Lamb Weston

Diluted

Operations

Expense

Expense

Earnings

Net Income

Weston

Stockholders

EPS

As reported

$