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Lamb Weston (LW) is sharply higher today after delivering a beat-and-raise Q1 report. Q1 (Aug) adjusted EPS of $0.75 was nicely above expectations, while revenue increased about 1% to $1.67 bln. Importantly, LW raised its FY27 outlook, now expecting adjusted EPS of $3.05-3.35, up from $2.95-3.25, while sales are expected to increase by a low-single-digit percentage versus its prior outlook of flat to up 1%. LW also raised adjusted EBITDA guidance to $1.125-$1.215 bln from $1.10-$1.20 bln.

• North America remained the bright spot, with volume increasing 7%, marking its seventh consecutive quarter of growth. This came despite flat U.S. restaurant traffic and a 1% decline in QSR traffic, although LW benefited from its outsized exposure to chicken-focused QSRs, where traffic rose 4%, alongside continued new customer wins and expansion with existing customers.
• International remained the weak spot, with sales down 8% to roughly $529 mln as volume fell 6% and price/mix declined 2%, primarily reflecting continued pressure in EMEA. However, LW expects margins to improve as it works through higher prior-year potato costs and improves capacity utilization, while China sales and EBITDA grew.
• Profitability also came in better than LW expected, with adjusted EBITDA of $286 mln declining 5% yr/yr, while North America adjusted EBITDA increased 11% and gross margin expanded. Freight, edible oils, packaging and ingredient costs all increased, with LW now expecting non-potato input inflation to run roughly 100 bps above its prior FY27 assumption, though cost savings and pricing actions are helping offset these pressures.
• Looking ahead, the earnings cadence is expected to improve further, with Q2 sales projected to increase by a low-single-digit percentage and adjusted EBITDA to grow by a high-single-digit to low-double-digit percentage. This supports management's expectation for earnings growth through FY27 as cost savings, pricing and improved utilization increasingly offset inflation.

Briefing.com Analyst Insight

This was a strong start to FY27 for LW, with the important takeaway that it can still deliver earnings growth in FY27 without a meaningful recovery in restaurant traffic. North America continues to outperform, with 7% volume growth despite flat U.S. restaurant traffic, while cost savings and recent pricing actions are helping mitigate higher-than-expected inflation. International remains the main drag, but improving EMEA utilization and the eventual roll-off of higher prior-year potato costs provide a path to better margins. The raised outlook also looks more credible following the Q1 upside, while expectations for Q2 EBITDA to return to growth support an improving earnings cadence through the remainder of the year.