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Lamb Weston (LW+5%) is heading higher following its Q1 (Aug) earnings report last night. This Idaho-based supplier of frozen potato products to restaurants and retailers beat slightly on EPS and revenue. However, it lowered FY25 EPS guidance pretty substantially to $4.15-4.35 from $4.35-4.85 even as it reaffirmed revenue at $6.60-6.80 bln. It's also now targeting the low-end of adjusted EBITDA prior guidance. The company also announced a restructuring plan.

• Revenue in Q1 declined 0.7% yr/yr to $1.65 bln, driven by a 3% volume decline. LW cited customer share losses, soft restaurant traffic trends, the carryover effect of its decision to exit certain lower-priced and lower-margin business in Europe, and the impact of a previously announced voluntary product withdrawal initiated in late FY24. The volume decline was partially offset by growth in key international markets.
• LW has said that the operating environment changed rapidly during FY24, as global restaurant traffic and frozen potato demand softened. In fact, the downward traffic trends accelerated during the back half of FY24 and into early FY25. This has led to an increase in available industry capacity in North America and Europe. LW said on its last call that this industry supply/demand imbalance will persist through much, if not all, of FY25.
• The silver lining is that QSR hamburger chains have increased promotional activities in recent months to drive restaurant traffic, which should also drive sales of French fries. We suspect LW's decent Q1 results following two big misses in Q3-Q4 were partially achieved by promotion-driven increased traffic in Q1.
• In terms of the restructuring plan, LW announced the permanent closure of its manufacturing facility in Connell, WA. In addition, LW is temporarily curtailing certain production lines and schedules across its manufacturing network in North America. LW also announced a 4% headcount reduction and the elimination of certain unfilled job positions. LW is also lowering its FY25 cap-ex outlook to $750 mln from $850 mln to save money.

It has been a rough few months for Lamb Weston. The stock enjoyed a huge move from early 2022 to mid-2023, but has been under pressure for much of the past year, including some gap down quarters in Q3-Q4 as demand has slowed and consumers eat out less frequently. However, recent promotional activity at some hamburger chains hopefully will spark volume improvements. The stock is holding up today despite the big guide down. We think investors are pleased to see even a modest EPS beat after two huge EPS misses in Q3-Q4. Also, LW reaffirmed FY25 revs, which was an encouraging sign, and the restructuring plan will help rein in costs.