Lamb Weston is set to appoint a new chief executive officer as the company reported a loss in its second quarter and revised down its fiscal 2025 outlook due to declining demand for frozen potato products across North America.
Shares of the company, based in Eagle, Idaho and serving major clients like McDonald’s, dropped by over 21% during morning trading on Thursday. This decline has resulted in a 42% decrease in shares for the year so far.
Michael Smith, who currently holds the title of chief operating officer, will take over as CEO and will join the board starting January 3, 2025. He is succeeding Thomas Werner, who will remain on as an adviser until August 31, 2025, to assist with the transition.
In a statement, Chairman W.G. Jurgensen acknowledged that Smith’s appointment is a result of a thoughtful succession planning strategy by the board, expressing confidence in Smith’s ability to lead the company into the future.
Having joined Lamb Weston in 2007, Smith has held various roles, including that of COO since May 2023, and has previously managed foodservice, retail, marketing, innovation, and growth strategies for the company.
This leadership change follows recent comments from activist investor Jana Partners, which suggested that Lamb Weston needed significant changes within its board and leadership to enhance its performance. Jana, which holds over a 5% stake in Lamb Weston, stated that without personnel adjustments, the company should contemplate a formal review of its strategic options, including the possibility of a sale.
Lamb Weston generates a variety of frozen products, including potatoes, sweet potatoes, and vegetable items for restaurants and retailers globally.
In October, Lamb Weston highlighted efforts to improve its operations, announcing the closure of a plant along with temporary production line reductions and adjusted manufacturing schedules to align with the declining demand in North America. This also included the possibility of job cuts and the elimination of unfilled roles to cut expenses, with the company employing over 10,000 individuals globally.
For its fiscal second quarter, Lamb Weston reported a loss of $36.1 million, translating to 25 cents per share, down from a profit of $215 million, or $1.48 per share, from the previous year. Adjusted for restructuring and one-time costs, the earnings stood at 66 cents per share—well below the $1.02 per share expected by analysts from Zacks Investment Research.
During the earnings conference call, the company observed a decline in customer traffic at quick-service hamburger chains, which fell by approximately 1.5% compared to the same quarter last year. Promotional meal deals led to customers opting for smaller portions, impacting overall volume despite some improvement in traffic trends.
Looking ahead, Lamb Weston has revised its forecast for fiscal 2025, now predicting adjusted earnings between $3.05 and $3.20 per share while estimating revenues to fall in the range of $6.35 billion to $6.45 billion. This is a shift from its earlier expectations, which anticipated adjusted earnings of $4.15 to $4.35 per share and revenues between $6.6 billion and $6.8 billion.
In contrast, analysts surveyed by FactSet project earnings at $4.21 per share, with revenues expected to hit $6.66 billion.