US potato giant Lamb Weston has announced a major restructuring to restore its financial results. It has also closed a factory in Idaho. The company continues to be affected by disappointing demand for French fries and other potato products, says CEO Tom Werner.
In the first quarter of fiscal year 2025 (June, July and August) of the broken financial year, the company achieved a turnover of $1,654 billion. The bottom line is $127,4 million in net profit. Converted to €116,14 million. The turnover decreased by 1% compared to the same quarter last year. The profit decreased by 46%. These figures are in line with what the company previously assumed.
3% less sales
The $11,2 million drop in sales is all about lower consumption worldwide, according to CEO Werner. Fewer potato products are being consumed both at home and in restaurants. "We expect demand to remain 'soft' through fiscal year 2025 (through May 2025 ed.)", Werner says in an explanation of the figures. Lamb Weston sold 3% less volume in the quarter.
The company has previously decided to change its strategy and position itself less as a price fighter. As a result, it has sold less volume to markets that are focused on a low price and can actually make more turnover at higher margins in the designated growth markets. Higher inflation in North America and Europe also helped. However, the company had to release $39 million for a voluntary recall of products.
Potato costs
More expensive potatoes have negatively affected the company's financial results, according to the commentary on the figures. In North America, Lamb Weston saw its EBITDA fall by $103,3 million, largely due to higher raw material costs and a recall. In Europe and other markets, results fell by more than $39 million.
Along with the financial results, the company announced a restructuring plan. Effective October 1, the doors of their Connell, Washington plant were closed. Lamb Weston built this plant in the 400.000s and primarily produced French fries and wedges. The facility processed about 375 tons of processing annually. The XNUMX employees will be laid off.
Impact Europe
It will also slow down processing lines in other North American factories to better align production with demand. It will also lay off 4% of its workforce. It has a total of fifteen North American processing factories, mainly in Washington, Idaho and Oregon. The four Dutch factories are not included in these plans, the Dutch branch of Lamb Weston reported in a letter to its growers.
These drastic measures, together with a $100 million reduction in investments, should together yield $55 million in cost savings (before taxes) and thus restore cash flow. In total, the company hopes to reduce costs by $200 to $250 million. Part of this amount can be achieved by purchasing fewer potatoes that are no longer needed (in North America) due to the reduced production capacity.
Expectation positive
Despite the economic winds blowing in a different direction – and the company still facing a lawsuit for artificially inflating profits – it is remarkably sticking to its previous forecast for the full fiscal year 2025. That is $6,6 to $6,8 billion, which represents year-on-year growth of 2% to 5%.