LAMB WESTON HOLDINGS, INC. 
Forward-Looking Statements
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, which we refer to as "MD&A," contains
forward-looking statements within the meaning of the federal securities laws.
Words such as "will," "continue," "may," "expect," "anticipate," "believe,"
"estimate," "support," "impact," "remain," "outlook," 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 our plans, execution, liquidity, dividends, share
repurchases, capital expenditures, operational costs, ERP implementation and
business outlook and prospects, as well as the impact of the COVID-19 pandemic
on the industry and consumer demand. These forward-looking statements are based
on management's current expectations and are subject to uncertainties and
changes in circumstances. Readers of this report should understand that these
statements are not guarantees of performance or results. Many factors could
affect our actual financial results and cause them to vary materially from the
expectations contained in the forward-looking statements, including those set
forth in this report. These risks and uncertainties include, among other things:
impacts on our business due to health pandemics or other contagious outbreaks,
such as the current COVID-19 pandemic, including impacts on demand for our
products, increased costs, disruption of supply or other constraints in the
availability of key commodities and other necessary services; our ability to
successfully execute our long-term value creation strategies; our ability to
execute on large capital projects, including construction of new production
lines; the competitive environment and related conditions in the markets in
which we and our joint ventures operate; political and economic conditions of
the countries in which we and our joint ventures conduct business and other
factors related to our international operations; disruption of our access to
export mechanisms; risks associated with possible acquisitions, including our
ability to complete acquisitions or integrate acquired businesses; our debt
levels; the availability and prices of raw materials; changes in our
relationships with our growers or significant customers; the success of our
joint ventures; actions of governments and regulatory factors affecting our
businesses or joint ventures; the ultimate outcome of litigation or any product
recalls; levels of pension, labor and people-related expenses; our ability to
pay regular quarterly cash dividends and the amounts and timing of any future
dividends; and other risks described in our reports filed from time to time with
the
This Item 2 is intended to supplement, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the fiscal year ended
Overview
Management's discussion and analysis of our results of operations and financial
condition is provided as a supplement to the consolidated financial statements
and related condensed notes included elsewhere herein to help provide an
understanding of our financial condition, changes in financial condition and
results of our operations. Our MD&A is based on financial data derived from the
financial statements prepared in accordance with
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Executive Summary
On
? Net sales declined 12% to
? Income from operations declined 20% to
? Net income declined 23% to
? Diluted earnings per share declined 23% to
? EBITDA including unconsolidated joint ventures declined 13%, to
Income from operations and EBITDA including unconsolidated joint ventures
? included approximately
related to the pandemic's impact on our operations, as described below
In the first quarter of fiscal 2021, our net cash provided by operating
activities was
As compared to the first quarter of fiscal 2020, price/mix increased, largely
due to higher prices and improved mix in our Foodservice and Retail segments,
while our volume declined as demand for frozen potato products outside the home
fell following government-imposed restrictions on restaurants and other
foodservice operations to slow the spread of COVID-19. Income from operations
declined due to lower sales as well as approximately
Approximately
inefficiencies, such as labor retention costs; costs to shut down, sanitize,
? and restart manufacturing facilities after a production employee was infected
by the virus; costs arising from modifying production schedules and reducing
run-times; and additional costs and inefficiencies related to manufacturing
retail products on lines primarily designed for foodservice products;
Approximately
approximately
? contracts for raw potatoes that could not be used due to the pandemic's
near-term effect on demand, and approximately
enhanced employee safety and sanitation protocols as well as incremental
warehousing, transportation and other supply chain costs; and
Approximately
? ("SG&A"), largely comprised of costs to retain certain sales employees, net of
CARES Act retention credits and other labor incentives.
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The amount of COVID-19 related costs sequentially decreased from fourth quarter of fiscal 2020, however, we expect that we will continue to incur some of these costs until the pandemic no longer has an impact on our manufacturing, supply chain, commercial and functional support operations.
We expect that we will continue to realize the impact of the pandemic on the
In the
steadily improved early in the quarter, then largely stabilized at below
pre-pandemic levels during the latter half of our first quarter. Traffic at
large, quick service chain restaurants ("QSRs") approached prior-year levels by
leveraging drive-thru and delivery formats. Full-service restaurant traffic
recovered to 70% to 80% of prior-year levels by the end of the quarter, aided
by the relaxing of government-imposed restrictions for on-premise dining, as
well as increased carry-out and delivery. Demand by our non-commercial
? customers (i.e., lodging and hospitality, healthcare, schools and universities,
sports and entertainment, and workplace environments) was significantly below
prior-year levels. We continue to expect traffic and demand at full-service
restaurants and non-commercial operations to be more vulnerable than at QSRs,
especially as options for outdoor dining become more limited with the onset of
colder weather beginning in our second quarter. In contrast, demand for retail
frozen potato products significantly increased along with overall food-at-home
consumption with the adoption of social distancing policies and
government-imposed shelter-in-place restrictions. Retail demand growth peaked
early in the quarter, and steadily moderated as the quarter progressed.
In
frozen potato products steadily approached prior-year levels by the end of the
quarter, although demand at this time last year was tempered due to a poor
? potato crop. Since most consumption in
drive-thru options are more limited, we anticipate that demand may be tempered
as options for outdoor dining decline with the onset of colder weather
beginning in our second quarter.
Demand improvement in our other key international markets was mixed. In
and
? approaching prior-year levels by the end of the quarter. In our other key
markets, which are primarily in
restaurant traffic and demand for frozen potato products has been uneven as
governments employ differing approaches to contain the spread of COVID-19.
In response to the decline in consumer and customer demand related to the pandemic, we have taken actions, and will continue to evaluate various options, to lower our cost structure and maximize the efficiency of our manufacturing and commercial operations, including temporarily closing facilities and/or modifying production schedules to rebalance utilization rates across our manufacturing network.
As discussed above, the government-imposed severe social and business restrictions, including closing or partially closing restaurants and other foodservice operations, have decreased the demand for our products. The outlook for the spread and eventual containment of COVID-19 remains unpredictable, as does its potential impact on the global economy, restaurant traffic, customer and consumer demand, our supply chain, and availability of key commodities and other necessary services. During these uncertain times, our top priorities are to ensure the health and welfare of our employees, maintain product safety, and continue to support our customers as they work to manage their supply chains and inventories. While the near-term impact of the pandemic on consumer demand and sales volume is likely to be material, we believe we have sufficient liquidity to manage through the uncertainty. See "Liquidity and Capital Resources" in this MD&A for more information.
Operating Results
We have four reportable segments: Global, Foodservice, Retail, and Other. We report product contribution margin by segment. Product contribution margin is the primary measure reported to our chief operating decision maker for
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purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and advertising and promotion expenses. Product contribution margin includes advertising and promotion expenses because the amounts are directly associated with segment performance; it excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance. For additional information on our reportable segments and product contribution margin, see Note 13, Segments, of the Condensed Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this report.
Thirteen Weeks Ended
Thirteen Weeks Ended
August 30, August 25, %
2020 2019 Inc/(Dec)
Segment sales
Global $ 447.5 $ 517.6 (14%)
Foodservice 236.7 305.4 (22%)
Retail 153.9 129.3 19%
Other 33.4 36.7 (9%)
$ 871.5 $ 989.0 (12%)
Segment product contribution margin
Global $ 77.8 $ 102.7 (24%)
Foodservice 85.8 102.5 (16%)
Retail 35.8 28.9 24%
Other 13.2 9.7 36%
212.6 243.8 (13%)
Advertising and promotion expenses 1.2 4.8 (75%)
Gross profit $ 213.8 $ 248.6 (14%)
Net Sales
Global segment net sales decreased
Foodservice segment net sales declined
Retail segment net sales increased
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offerings, which have historically comprised approximately 40% of the segment's shipments, were strong, but were partially offset by a decline in private label product shipments, reflecting the loss of certain low-margin private label business beginning in the second quarter of fiscal 2020. Price/mix increased 8%, largely driven by favorable mix from increased sales of branded products.
Net sales in our Other segment declined
Product Contribution Margin
Global segment product contribution margin declined
Foodservice segment product contribution margin declined
Retail segment product contribution margin increased
Other segment product contribution margin was
Selling, General and Administrative Expenses
Selling, general and administrative expenses declined
Interest Expense, Net
Interest expense, net was
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Income Tax Expense
Income tax expense for the first quarter of fiscal 2021 and 2020 was
Equity Method Investment Earnings
We conduct business through unconsolidated joint ventures in
Liquidity and Capital Resources
Sources and Uses of Cash
The current COVID-19 pandemic has disrupted our business and operating results.
As a result of the uncertainties caused by the pandemic, we have taken, and are
continuing to take, actions to enhance liquidity. We limited discretionary
expenses across the Company; implemented a hiring and salary freeze for our
We believe our cash on hand, cash flows from operations and our current credit facilities will be sufficient to satisfy our future working capital requirements, interest payments, capital expenditures, dividends on our common stock, and other financing requirements for the foreseeable future. We continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. If we are unable to generate sufficient cash flows from operations, or are otherwise unable to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives, which may require waivers under our credit agreements governing our senior secured debt and indentures governing our senior notes, in order to generate additional cash. There can be no assurance that we would be able to obtain additional financing or any such waivers on terms acceptable to us or at all. For additional information on our debt, see Note 9, Debt and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this report.
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