Lamb Weston (NYSE:LW) executives said the company is seeing volume momentum and share gains as it executes its “Focus to Win” strategy, while continuing to face pricing and mix headwinds and a competitive international environment.
On the company’s fiscal second-quarter 2026 earnings call, President and CEO Mike Smith said the turnaround effort “is not linear,” but he characterized progress over the first half of the year as encouraging, citing volume growth of 8% in the second quarter and 7% for the first half. CFO Bernadette Madarieta said second-quarter net sales increased 1%, helped by a $24 million foreign currency translation benefit, while sales were essentially flat on a constant-currency basis.
Volume gains offset softer restaurant traffic
In the U.S., Madarieta said quick-service restaurant traffic was flat over the trailing three-month period of August, September, and October, noting chicken-focused QSR traffic grew while QSR burger traffic declined 3% (improving slightly in October). In North America foodservice, she said French fry volume was up slightly over the same period. Internationally, management said traffic declined in most markets, including the U.K., which Madarieta described as the company’s largest international market and down about 3%.
Smith said the company has “line of sight to volume growth for the balance of the year,” adding that Lamb Weston ended the second quarter with more than 90% of its open contracted volume negotiations concluded, including all material contracts. He said the company expects to complete negotiations on “the vast majority” of its large chain contracts by the end of calendar 2025.
Pricing and mix pressure persists
While volumes improved, management said Price/Mix remained a key headwind. Madarieta said Price/Mix declined 8% on a constant-currency basis, attributing the decline primarily to the “carryover and current year impact of price and trade to support customers,” along with mix shifts toward lower-margin sales.
In North America, Madarieta said net sales were essentially flat year over year, with volume up 8% and Price/Mix down 8%. She and Smith pointed to mix shifts as a major driver, including a higher proportion of sales to multinational chain customers and, in retail, a shift from branded products toward private label. On the call, Madarieta said the mix impact has become “more pronounced” recently and that the branded-to-private-label trend is expected to persist through the balance of the year, while the company continues monitoring whether it continues longer term.
Management also said pricing actions in international markets are weighing on results. Madarieta said International segment net sales rose 4% including currency, but declined 1% on a constant-currency basis. Volume increased 7%, but Price/Mix also declined 8% at constant currency, driven by pricing actions to support customers and unfavorable mix.
North America capacity restarts; Europe curtails one line
Smith said Lamb Weston restarted previously curtailed production lines in North America late in the second quarter to support demand and maintain service levels and customer fill rates. In response to an analyst question, Smith said utilization at North America facilities had climbed into the “low 90s,” prompting the decision to bring capacity back online.
Smith said the company does not expect restarting those lines to be a cost drag, arguing that running lines more frequently can support better run rates and operating efficiencies. Madarieta added that improved absorption in North America should be a “net positive” to factory burden in the second half, though she said international operations are expected to remain a headwind due to ramp-up and underutilization costs.
In Europe, Smith said the company has communicated to employees that it is “curtailing a single line” as it works to balance supply and demand. Management described Europe as particularly competitive, citing a strong potato crop, softer restaurant traffic, and lower export demand as added production has localized in other regions. Smith noted that Lamb Weston’s European business is “more open and less contracted,” which he said contributes to pricing pressure. He also pointed to recent market consolidation in Europe but said it is too early to assess the impact.
Profitability trends and cost savings efforts
Madarieta said adjusted EBITDA declined $9 million year over year to $286 million. Adjusted gross profit fell $16 million, which she attributed primarily to unfavorable Price/Mix, partly offset by higher sales volume, cost savings initiatives, and lower total manufacturing cost per pound.
She also cited inflation in input costs outside of raw potato prices, including tariffs, labor, fuel, power, water, transportation rates, and continued expectations for palm oil tariff costs as proposed exemptions have not been finalized. Adjusted SG&A declined $8 million year over year, which she said reflected cost savings, partially offset by compensation and benefit accruals.
By segment, Madarieta said North America adjusted EBITDA increased 7%, or $19 million, to $288 million, driven by higher volume and lower manufacturing cost per pound, including raw potato deflation and savings from cost initiatives. International adjusted EBITDA fell $21 million to $27 million, reflecting price and trade actions, higher manufacturing cost per pound, and ramp-up and rebalancing costs, including startup expenses tied to Argentina and costs in Latin America and Europe related to inventory management and supply-demand rebalancing.
Smith said the cost savings plan is “well on its way,” and the company expects to deliver its target for the year while building a broader “culture of continuous improvement.” He said Lamb Weston is investing in tools to improve demand and supply planning and highlighted work with AlixPartners to develop scorecarding, tracking, and KPI accountability at the plant level.
Cash flow, capital returns, and reaffirmed outlook
Management emphasized cash generation and capital discipline. Madarieta said Lamb Weston ended the quarter with approximately $1.43 billion of liquidity, including about $1.35 billion available under its revolving credit facility and $83 million of cash and cash equivalents. Net debt was $3.6 billion, and trailing 12-month adjusted EBITDA-to-net-debt leverage was 3.1 times.
In the first half of fiscal 2026, Madarieta said the company generated $530 million of cash from operations and $375 million of free cash flow. Capital expenditures were $156 million, down $331 million year over year, which she attributed to the completion of major growth investments in facility expansions. She said full-year fiscal 2026 capital spending is expected to come in below the company’s $500 million target.
The company returned more than $150 million to shareholders in the first half, including $103 million in dividends and $50 million of stock repurchases. Madarieta said approximately $40 million of repurchases occurred in the second quarter, leaving $308 million under the current authorization. The board approved a 3% increase to the quarterly dividend, raising it to $0.38 per share.
For fiscal 2026, Madarieta said the company is reaffirming its outlook, which includes the contribution of a 53rd week in the fourth quarter. She said the company expects to be “on track towards delivering the high end” of its sales guidance range, with North America second-half volumes expected to grow at or above first-half rates and international volumes expected to be flat as the company laps prior-year customer wins.
However, Madarieta said Price/Mix is expected to remain unfavorable at constant currency in the second half, though less so than in the first half. She said adjusted gross margin in the second half is expected to be flat to down versus the first half’s 20.4%, reflecting Price/Mix dynamics and higher manufacturing costs internationally, including Argentina ramp-up and underutilization in Europe. Adjusted SG&A is expected to continue benefiting from cost savings, though management anticipates incremental innovation and advertising and promotion investments and an extra week of expenses in the fourth quarter. Madarieta projected a full-year tax rate of 28% to 29%, with second-half rates in the low 20s.
Given international costs and pricing dynamics, management said it is maintaining its adjusted EBITDA guidance range of $1 billion to $1.2 billion, with Madarieta saying the company currently expects to finish closer to the midpoint.
About Lamb Weston (NYSE:LW)
Lamb Weston, traded on the NYSE under the symbol LW, is a leading global processor and supplier of frozen potato products. The company’s portfolio includes a variety of potato-based items such as French fries, potato wedges, hash browns and specialty cuts tailored to the foodservice and retail grocery channels. Lamb Weston serves quick-service restaurants, full-service operators, grocery chains and food distributors, offering customized product formats, packaging solutions and seasoning options to meet evolving customer demands.
Founded in 1950 and headquartered in Eagle, Idaho, Lamb Weston has grown from a regional processor into one of the world’s largest producers of frozen potato products.
