July 31, 2024 • 3 mins
US-based frozen potato giant Lamb Weston's profits have been dropping, off the back of a rocky financial period for the company.
This is off the back of the company's shares falling almost 50 percent over the course of 2024.
Milford Asset Management's Stephanie Batchelor unpacks this downturn.
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Speaker 1 (00:00):
This is the business ow, this is the news talks.
He'd be and I welcome to the program. Our senior
analyst from Milford Asset Management, Stephanie Bachelor. Good evening.
Speaker 2 (00:08):
Hey there.
Speaker 1 (00:09):
Now, you'd think that even in bad times, people would
still be eating chips and there'd still be money in chips,
but apparently there isn't. With one of the world's largest
frozen French fry producers, Lamb Western, in some trouble today.
So tell us about that stuff.
Speaker 2 (00:24):
Yeah, that's right. So Lamb Western, which is the largest
French fried producer in the US, they've had a bit
of a rocky year. Shares were already down about thirty
percent this year before they reported financial results, and there
are a lot of investors thinking, you know, this is
starting to look pretty attractive and shares are looking pretty cheap.
But it's a great lesson in that the cheap can
always become cheaper. So shares actually felt further twenty eight
(00:47):
percent on the day of the result, which was the
biggest one they move in the history of the company.
And so shares are now down almost fifty percent this year.
Speaker 1 (00:55):
The chips are down, they are they are What were
the key issues in the result that would call it
a severe price reaction.
Speaker 2 (01:05):
Well, there are a few things going on. They've been
losing market share because they did a bit of a
software transition and they also had a voluntary product withdrawal.
But the main issue is soft restaurant traffic. So people
are feeling the pinch from the cost of living crisis,
and with restaurants and fast food companies having raised prices
so much of the last couple of years, it's now
(01:25):
just too expensive to eat out, so people are choosing
to eat at home instead, and that obviously means a
lot fewer French fries are being bought. At the same time,
lamb Wiston has been building new production plants, which isn't
great if the demand isn't there, and now they're actually
having to cut prices to try to win back some
of that market share that they've lost.
Speaker 1 (01:45):
Are other producers of French fries or chips also seeing
the same thing?
Speaker 2 (01:50):
Yeah, so I mentioned land Western is the largest one
in the US. They've got about forty percent market share,
and there are two other large players with about fifty
percent share between them. Pretty cozy sort of oligopoly. And
what lam Western is saying is pretty representative of the
overall industry. But they've said they've seen negative restaurant traffic
trends before, but they've never seen them this prolonged, and
(02:12):
the trends are actually still continuing to decline even over
the last months, so it doesn't look like there are
any green shoots.
Speaker 1 (02:19):
And everyone's getting hurt. We reported earlier about the report
from McDonald's, which is that's aligning with what LAMB western
is saying.
Speaker 2 (02:26):
Really yeah, So McDonald's one of LAMB Weston's largest customers,
and the result was also pretty weak. They actually had
their first global sales decline since twenty twenty, and they
said the consumer's becoming increasingly pressured. They're really looking for value,
particularly in those lower income households, and following a lot
of those price increases, McDonald's just no longer seen as
(02:47):
a value option, so they're trying to combat this. They've
launched a five dollar meal deal in late June, and
management seemed pretty upbeat about the early traction from this,
but they did also kind of hint that there's going
to need to be more value going forward. And despite
the negative result of McDonald's shares were actually up about
four percent, which shows just how negative investors were going
(03:08):
into the results. So it was weak, but it wasn't
as terrible as they expected. So you know, sometimes the
share price reaction can be quite hard to pick quarter
to quarter.
Speaker 1 (03:17):
Thank you so much, Stephanie, Senior analyst from Milford's Asset
Management Sefany Bachelor, if you go have some chips for dinner.
Speaker 2 (03:23):
Thank you. Thank you for more from Heather Duplessy Allen Drive.
Speaker 1 (03:28):
Listen live to news talks the'd be from four pm weekdays,
or follow the podcast on iHeartRadio
This is the business ow, this is the news talks.
He'd be and I welcome to the program. Our senior
analyst from Milford Asset Management, Stephanie Bachelor. Good evening.
Speaker 2 (00:08):
Hey there.
Speaker 1 (00:09):
Now, you'd think that even in bad times, people would
still be eating chips and there'd still be money in chips,
but apparently there isn't. With one of the world's largest
frozen French fry producers, Lamb Western, in some trouble today.
So tell us about that stuff.
Speaker 2 (00:24):
Yeah, that's right. So Lamb Western, which is the largest
French fried producer in the US, they've had a bit
of a rocky year. Shares were already down about thirty
percent this year before they reported financial results, and there
are a lot of investors thinking, you know, this is
starting to look pretty attractive and shares are looking pretty cheap.
But it's a great lesson in that the cheap can
always become cheaper. So shares actually felt further twenty eight
(00:47):
percent on the day of the result, which was the
biggest one they move in the history of the company.
And so shares are now down almost fifty percent this year.
Speaker 1 (00:55):
The chips are down, they are they are What were
the key issues in the result that would call it
a severe price reaction.
Speaker 2 (01:05):
Well, there are a few things going on. They've been
losing market share because they did a bit of a
software transition and they also had a voluntary product withdrawal.
But the main issue is soft restaurant traffic. So people
are feeling the pinch from the cost of living crisis,
and with restaurants and fast food companies having raised prices
so much of the last couple of years, it's now
(01:25):
just too expensive to eat out, so people are choosing
to eat at home instead, and that obviously means a
lot fewer French fries are being bought. At the same time,
lamb Wiston has been building new production plants, which isn't
great if the demand isn't there, and now they're actually
having to cut prices to try to win back some
of that market share that they've lost.
Speaker 1 (01:45):
Are other producers of French fries or chips also seeing
the same thing?
Speaker 2 (01:50):
Yeah, so I mentioned land Western is the largest one
in the US. They've got about forty percent market share,
and there are two other large players with about fifty
percent share between them. Pretty cozy sort of oligopoly. And
what lam Western is saying is pretty representative of the
overall industry. But they've said they've seen negative restaurant traffic
trends before, but they've never seen them this prolonged, and
(02:12):
the trends are actually still continuing to decline even over
the last months, so it doesn't look like there are
any green shoots.
Speaker 1 (02:19):
And everyone's getting hurt. We reported earlier about the report
from McDonald's, which is that's aligning with what LAMB western
is saying.
Speaker 2 (02:26):
Really yeah, So McDonald's one of LAMB Weston's largest customers,
and the result was also pretty weak. They actually had
their first global sales decline since twenty twenty, and they
said the consumer's becoming increasingly pressured. They're really looking for value,
particularly in those lower income households, and following a lot
of those price increases, McDonald's just no longer seen as
(02:47):
a value option, so they're trying to combat this. They've
launched a five dollar meal deal in late June, and
management seemed pretty upbeat about the early traction from this,
but they did also kind of hint that there's going
to need to be more value going forward. And despite
the negative result of McDonald's shares were actually up about
four percent, which shows just how negative investors were going
(03:08):
into the results. So it was weak, but it wasn't
as terrible as they expected. So you know, sometimes the
share price reaction can be quite hard to pick quarter
to quarter.
Speaker 1 (03:17):
Thank you so much, Stephanie, Senior analyst from Milford's Asset
Management Sefany Bachelor, if you go have some chips for dinner.
Speaker 2 (03:23):
Thank you. Thank you for more from Heather Duplessy Allen Drive.
Speaker 1 (03:28):
Listen live to news talks the'd be from four pm weekdays,
or follow the podcast on iHeartRadio
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