Fewer Americans went to fast-food restaurants last quarter. Lamb Weston, which supplies frozen fries to many of the largest chains, sold more fries to them anyway.
In the three months to 30 August, the company's North American sales rose 5 per cent to $1.14 billion, on sales volume 7 per cent higher than a year earlier, according to its first-quarter results. It was the seventh consecutive quarter of volume growth in the region. Over the same quarter, US restaurant traffic was essentially flat and traffic at quick-service restaurants fell 1 per cent, Jim Gray, the chief financial officer, told analysts, citing Circana data.
Part of the difference is chicken. "QSR chicken traffic increased 4%, favorably impacting our sales mix," Mr Gray said on the earnings call. "And in fact, within our chain business, we over-index with chicken QSR customers."
Selling more, earning less on each
A supplier to big chains wins volume by pricing to keep their contracts. Price and mix together fell 2 per cent in North America, which the company attributed to price and trade support for customers and a shift towards faster-growing chains and private-label products. Mike Smith, the chief executive, said about 70 per cent of the contracts up for renewal this year had been completed, with high retention and pricing that he said reflects current inflation.
Inflation is the other pressure. "All key input costs were increasing in the quarter with substantial increases in freight costs, edible oils, packaging and ingredients," Mr Gray said. Even so, North American segment adjusted EBITDA rose 11 per cent to $287 million, helped by higher volume, cost cuts, $5 million of tariff refunds and better earnings from its joint venture with RDO.
The company is also leaning on its suppliers. Operating cash flow benefited by $59 million from higher accounts payable, which the release attributed to working with suppliers to improve payment terms. Paying suppliers later is a common way for large buyers to finance themselves.
Too much capacity in Europe
Outside North America the quarter was weak. International sales fell 8 per cent to $529 million and segment adjusted EBITDA fell 54 per cent to $27 million, as volume dropped and the company worked through potatoes bought at last year's higher prices.
Mr Smith described last year in Europe as one of large crops, more acres planted, excess factory capacity and soft demand. Lamb Weston says it has stopped production at its Broekhuizenvorst plant in the Netherlands and moved the customers it served to other plants, which it says will lift its utilisation in the region by about ten percentage points, to the low 90s.
Others are cutting too. Mr Smith cited a competitor's announced closure of a Belgian plant and media reports that a planned large new factory in Germany has been cancelled. "The 3 of those represent over 1 billion pounds of capacity in that region," he said.
This year's European crop has been hurt by heat and drought, he said, and spot prices for potatoes not bought under contract have risen. "Potatoes will be the limiter in the industry this year, and we expect not all open industry capacity will be used," he said. Lamb Weston raised its prices in Europe earlier in the month.
The numbers that moved the shares
Total net sales rose 1 per cent to $1.67 billion. Net income fell 55 per cent to $29 million, while adjusted net income was flat at $103 million. The company raised its full-year guidance for adjusted EBITDA to between $1.125 billion and $1.215 billion and now expects net sales to grow by a low single-digit percentage.
The shares rose 7.5 per cent on Tuesday, The Financial reported, citing The Associated Press. Net debt stood at $3.8 billion, 3.3 times trailing adjusted EBITDA.
Executives plan to set out longer-term targets at an investor day early in 2027. On the call, Jan Craps, the executive chair, said the company's review of markets and channels could eventually lead to partnerships or divestitures.
Results, segment figures, cash flow, the payables benefit, the plant closure and the updated outlook are from Lamb Weston's first-quarter fiscal 2027 earnings release of 6 October 2026, filed as Exhibit 99.1 to its Form 8-K. The plant's location is from the company's 10-K for fiscal 2026 and its 10-Q for the quarter. Traffic data, the European capacity figures, crop conditions, contract renewals, net debt and the executives' remarks are from the company's earnings call the same day, as transcribed by The Motley Fool and published by Yahoo Finance. The share price move is as reported by The Financial (finchannel.com), citing The Associated Press, and Yahoo Finance closing data. Accurate to 10am ET on 7 October 2026.
Topics businessrestaurantseuropesupply chaincapacity
