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Lamb Weston Well Positioned for Continued Development

Lamb Weston will acquire the 50% of its consolidated joint venture Lamb Weston BSW that it does not currently own for about $65 million, president and CEO Tom Werner said on a fiscal 2018 fourth quarter earnings call July 25.

The company plans to continue to support customer growth across North America and in fast-growing international markets like China and Southeast Asia, while expanding its innovation focus to increasingly include non-traditional outlets such as convenience stores, sandwich and bakery concepts.

However, higher transportation and production costs will likely temper Lamb Weston’s opportunities for significant gross margin percentage expansion and the company expects increased market volatility outside the U.S.

“The imposition of tariffs or other trade barriers raises landing cost for products made in the U.S. and opens the door for more competition from non-U.S. sources in key international markets. At the very least, the threat of retaliatory tariffs on U.S. products may encourage customers to seek alternative suppliers,” Werner noted.

In addition, significant new capacity in Europe will become operational within the next 12 months.

The company anticipates the potato category will grow 1.5% to 2.5%. Despite Europe’s drought conditions and hot weather, the company benefits from the cooler weather in Austria and the UK, Werner said.

Lamb Weston continues to focus on product innovation. The firm will begin rolling out its Crispy on Delivery fry packaging solution to foodservice customers later this year. Werner is pleased with the performance of Grown in Idaho, the company’s new brand of frozen fries and potato products cut with the skin on.

“Although there was some gain based on ORE-IDA’s supply disruption, I think we’re past that,” Werner said.

The company is targeting mid-single-digit sales growth for the fiscal year and hopes its new Richland, WA, processing plant, which became fully operational in the third quarter, will help it to achieve this, said Lamb Weston CFO Rob McNutt.

The company expects capital expenditures of about $360 million, McNutt said, of which approximately $200 million is related to completing the construction of a new french-fry production line in Hermiston, OR, that will be operational in May 2019.

For the full story, go to this week’s Food Institute Report.