LW Q3 Deep Dive: Volume Growth and Cost Initiatives Counter Margin Pressures

Potato products company Lamb Weston (NYSE:LW) beat Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $1.66 billion. On the other hand, the company’s full-year revenue guidance of $6.45 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.74 per share was 38.7% above analysts’ consensus estimates.

Is now the time to buy LW? Find out in our full research report (it’s free).

StockStory’s Take

Lamb Weston's third quarter saw a positive market reaction as the company reported results that surpassed Wall Street revenue and earnings expectations, driven primarily by strong sales volume growth. Management pointed to accelerated customer wins, especially in North America, and the early benefits of its Focus to Win strategic plan as key contributors to the quarter’s outperformance. CEO Mike Smith emphasized, “We delivered another quarter of strong volume growth,” attributing this to both innovation and enhanced customer-centric actions throughout the organization.

Looking ahead, Lamb Weston’s full-year guidance reflects both optimism around continued volume growth and caution regarding input costs and competitive dynamics, particularly in international markets. Management highlighted ongoing investments in new product innovation and the expansion of manufacturing capacity, such as the new Argentina facility, as central to their forward strategy. CFO Bernadette Madarieta noted, “We expect year-over-year volume growth behind customer momentum in both segments,” while also pointing to cost savings initiatives and lower potato prices as expected margin supports in the coming quarters.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to increased new customer activity, operational efficiency gains, and strategic investments in capacity and product innovation, while also acknowledging persistent industry competition and evolving channel mix.

• Volume growth from customer wins: The company achieved higher sales volumes, particularly in North America and Asia, supported by recent customer contract wins and early conversion of new business that was initially expected in later periods.
• Cost savings progress: Lamb Weston’s cost savings program began to deliver results, with improvements in manufacturing cost per pound and lower SG&A expenses, partially offsetting margin pressures from unfavorable price mix.
• Channel and product mix shifts: The company experienced an unfavorable shift in channel and product mix, including increased focus on private label volume in retail and price support to retain and grow customer relationships, especially in international markets.
• Capacity expansion measures: Responding to sustained North American volume growth, Lamb Weston restarted a previously curtailed production line and began shipping from its new Argentina facility, aiming to support customer fill rates and future export growth, particularly to Brazil.
• Competitive and market environment: Management noted mixed restaurant traffic trends—flat overall in QSR (quick service restaurants) with softness in certain international markets like the UK—requiring continued price investments and adaptation to evolving consumer behavior.

Drivers of Future Performance

Lamb Weston expects its future performance to be shaped by ongoing customer momentum, cost management initiatives, and the balance between competitive pressures and input cost relief.

• Sustained customer momentum: Management expects year-over-year volume growth in both North America and international segments, supported by ongoing customer contract wins and expanded broker networks targeting underpenetrated channels. However, the timing of new customer ramp-up may lead to fluctuating quarterly growth rates.
• Margin management and cost savings: The company’s cost savings plan is projected to deliver $100 million in annualized benefits, with about two-thirds impacting gross profit and the remainder affecting SG&A. Lower potato prices in North America and Europe are anticipated to provide some relief, though rising tariffs and input costs remain headwinds.
• Competitive and market dynamics: The international segment faces increased competition and pricing pressure, particularly in Europe and Latin America. Management also included tariff impacts in its outlook, citing a $25 million annualized exposure to palm oil and other ingredient tariffs, alongside uncertainties surrounding the timing of regulatory changes.

Catalysts in Upcoming Quarters

In upcoming quarters, our analyst team will monitor (1) the pace and sustainability of new customer volume ramp-up—particularly as additional production capacity comes online, (2) the realization of cost savings and margin improvement from both operational initiatives and lower potato costs, and (3) management’s ability to mitigate competitive pricing pressures in international markets. Any updates on tariff relief or regulatory changes will also be important to track.

Lamb Weston currently trades at $58.08, up from $55.69 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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