Lamb Weston, a leading provider of frozen French fries for major fast-food chains such as McDonald’s, KFC, and Taco Bell, has appointed a new CEO following an unexpected loss in the second quarter attributed to a decline in consumer spending on dining out.
The company’s challenges, producing approximately 80 million servings of fries daily around the globe, have been evident to investors, leading to a stock price drop of over 40% this year. In an effort to adapt to the decreasing demand, Lamb Weston announced job cuts and plans to close a facility while reducing production in October. The firm employs over 10,000 individuals worldwide.
Recently, a significant investor sent a letter to the company, emphasizing the need for new leadership due to what they deemed major missteps, notably the failure to recognize a drop in demand as customers reduced their restaurant visits. In a recent announcement, it was revealed that Chief Operating Officer Mike Smith would take over as CEO at the start of the upcoming year, succeeding Thomas Werner, who will transition to an advisory position.
Following the announcement, shares fell by more than 23%. Chairman W.G. Jurgensen expressed confidence in Smith’s leadership abilities and noted that his appointment is the result of thorough succession planning by the board. Smith has been with the company since 2007 and stepped into the COO role last year.
On Thursday, investors reacted sharply to the news of a staggering $36 million loss during the fiscal second quarter, a sharp contrast to profits of $215 million in the same timeframe the previous year. Excluding one-time expenses, the company failed to meet Wall Street’s expectations for per-share earnings, falling 36 cents short of the anticipated $1.02.
Jana Partners, the investor that raised concerns in its letter to Lamb Weston, listed various complaints including inefficiencies, excessive spending, and poor financial decisions. They also questioned the company’s use of corporate resources, including its corporate jet, and expressed dissatisfaction with the appointment of the new CEO.
Jana voiced its frustrations again on Thursday, criticizing the company’s leadership change as ineffective, stating, “Today’s disastrous financial results and decision to swap its CEO for another long-standing Lamb Weston executive complicit in its widespread operational and strategic debacles is just the latest stick in the eye from a board that has completely failed shareholders.” They hold more than 5% of the company’s stock and called for significant changes to the board or for the company to consider a sale.
Lamb Weston is navigating a challenging operational landscape following the pandemic, as inflation has shifted consumer habits both in the U.S. and globally. In a conference call, the company noted that customer traffic at hamburger outlets declined by approximately 1.5% in the last quarter. Major fast-food chains are attempting to boost customer turnout through value meal promotions, adversely affecting the volume of frozen French fry sales, according to Lamb Weston.
McDonald’s, a crucial player for Lamb Weston, posted disappointing results in its latest quarter, with overall same-store sales declining by 1.5%, impacted by weak demand in China amid an economic slowdown. To counteract its falling performance, McDonald’s introduced a $5 value meal in late June and chose to extend this offer through December in many of its U.S. locations to attract low-income customers.
Looking ahead, Lamb Weston now projects its earnings for 2025 to fall between $3.05 and $3.20 per share, significantly lower than the $4.21 per share that Wall Street previously forecasted.