The potato processing industry is a fairly closed stronghold with many private, unlisted companies. The sector seems to be performing well above average and investors are sensing their opportunities. The good results not only offer opportunities for investors, but also for growers, something seems to be changing in the potato market.
One of the few companies that is listed on the NYSE is Lamb Weston and that company is popular with investors. Lamb Weston announced results for the second quarter of fiscal 2023 earlier this month. Compared to the second quarter of fiscal 2022, sales increased by 27% to $1,28 billion. Gross profit rose to $272 million, up 138% from the same period a year earlier. Even more impressive is net profit, which rose 217% to $103 million. The company's profit forecast for the 2023 financial year has been revised upwards from $540 million to $580 million.
Lamb Weston's good results have not gone unnoticed by investors and the company's share price took significant steps upwards, reaching an all-time high of $6 on January 99,61, after the presentation of the quarterly figures.
At least as interesting is CEO Tom Werner's outlook during the presentation of the quarterly figures. He expects that the company will more than compensate for higher input costs and more expensive potatoes by further increasing sales prices in the second half of the fiscal year, and that operating profit will rise further. Of concern are supply chain constraints and inflationary pressures on consumers.
Broader trend
Lamb Weston's results do not appear to be isolated. As mentioned: most potato processors are not listed on the stock exchange, so a comparison is difficult to make. But there are signs that expectations for the chip market are high. For example, several chip manufacturers have recently invested heavily in capacity and expansion. Consider the Belgian Clarebout, which recently took over industry peer Mydibel and has plans for a new factory in Dunkirk, or Aviko, which opened a new factory in Poperinge in October.
The potato processors make money, but to continue making money they must have sufficient potatoes. The good results of the processors are therefore slowly but surely trickling down to the potato growers. The futures market is hovering around €30 per 100 kilos PAT the first transaction is for €30 for Agria delivery in February and the contracts with which the Belgian industry has come out can be called historically high. This appears to be a change in the potato market, from a market dominated by supply to a demanding market in which processors have to do their best to attract growers.