News Release

For more information, please contact:

Investors:

Dexter Congbalay

224-306-1535

dexter.congbalay@lambweston.com

Media:

Shelby Stoolman

208-424-5461

shelby.stoolman@lambweston.com

·

Net sales increased 4% to $825 million

·

Income from operations increased 11% to $140 million; Adjusted Income from Operations(1) increased 7%  

to $144 million

·

Adjusted EBITDA including unconsolidated joint ventures(1) increased 12% to $189 million

·

Diluted EPS was $0.52, compared with $0.59 in second quarter 2017

·

Adjusted Diluted EPS(1) was $0.54, compared with $0.63 in second quarter 2017

·

Raised quarterly dividend by 2%

·

Net sales expected to increase mid-single digits, up from a previous estimate of low-to-mid single digits

·

Adjusted EBITDA including unconsolidated joint ventures(1) expected to be $780 million-$790 million, up from a previous estimate of $740 million-$760 million

Summary of Second Quarter FY 2018 Results

($ in millions, except per share)

Year-Over-Year

Year-Over-Year

Q2 2018

Growth Rates

YTD 2018

Growth Rates

Net sales

$

824.6

4%

$

1,642.1

5%

Income from operations

$

139.8

11%

$

277.4

11%

Net income attributable to Lamb Weston

$

76.6

(12%)

$

160.0

(4%)

Diluted EPS

$

0.52

(12%)

$

1.08

(4%)

Adjusted EBITDA including unconsolidated joint ventures(1)

$

188.9

12%

$

380.3

12%

Adjusted Diluted EPS(1)

$

0.54

(14%)

$

1.11

(8%)

Global Segment Summary

Year-Over-Year

Q2 2018

Growth Rates

Price/Mix

Volume

($ in mil.)

Net Sales

$

416.9

1%

3%

(2%)

Segment Product Contribution Margin(1)

$

88.2

(4%)

Foodservice Segment Summary

Year-Over-Year

Q2 2018

Growth Rates

Price/Mix

Volume

($ in mil.)

Net Sales

$

272.8

9%

8%

1%

Segment Product Contribution Margin(1)

$

92.2

15%

Retail Segment Summary

Year-Over-Year

Q2 2018

Growth Rates

Price/Mix

Volume

($ in mil.)

Net Sales

$

102.0

6%

4%

2%

Segment Product Contribution Margin(1)

$

19.4

(7%)

FY 2018 Outlook Summary

Net sales growth rate

Mid-Single Digits

Adjusted EBITDA including unconsolidated joint ventures(1)

$780 million-$790 million

Interest expense

$105 million-$110 million

Cash used for capital expenditures

Approximately $250 million

·

Net sales to grow mid-single digits, with price/mix and volume growth improving in the second half of fiscal 2018 as new pricing structures for an increasing number of customer contracts become effective and as the Company’s new production capacity in Richland, Washington becomes available. The Company’s previous estimate was for net sales to grow low-to-mid single digits.

·

Adjusted EBITDA including unconsolidated joint ventures(1) to be in the range of $780 million to $790 million, including higher selling, general and administrative expenses as a percentage of sales for fiscal 2018 due to the full-year impact of incremental costs associated with being a stand-alone public company, as well as higher advertising and promotional expense in support of the introduction of the Company’s Grown in Idaho product line in retail. Using the mid-point of the range, this represents an increase of approximately 13% percent versus a fiscal 2017 pro forma Adjusted EBITDA including unconsolidated joint ventures(1) of $692 million. The Company’s previous estimate was for Adjusted EBITDA including unconsolidated joint ventures(1) to be in the range of $740 million to $760 million.

·

Total interest expense for fiscal 2018 to continue to be in the range of $105 million to $110 million, which is an increase of approximately $45 million to $50 million from fiscal 2017 due to the full-year impact of the Company’s capital structure after the spinoff from Conagra.

·

Cash used for capital expenditures to be approximately $250 million for fiscal 2018, an increase of $25 million versus the previous estimate of $225 million. This increase primarily relates to costs associated with the initial phase of construction of a new production line at our Hermiston, Oregon facility.

(1)

Adjusted EBITDA including unconsolidated joint ventures, pro forma Adjusted EBITDA including unconsolidated joint ventures, Adjusted Income from Operations, Adjusted Diluted EPS, pro forma Adjusted Diluted EPS and Segment Product Contribution Margin are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures and the reconciliations at the end of this press release for more information. Pro forma Adjusted EBITDA including unconsolidated joint ventures includes $15.0 million of stand-alone public company costs for a full year. See also “Outlook” in this press release for a discussion of the earnings guidance on a non-GAAP basis.

(2)

The effective tax rate is calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

November 26,

November 27,

November 26,

November 27,

2017

2016 (1)

2017

2016 (1)

Net sales

$

824.6

$

790.7

$

1,642.1

$

1,567.0

Cost of sales

615.4

591.8

1,236.2

1,187.5

Gross profit

209.2

198.9

405.9

379.5

Selling, general and administrative expenses (2)

69.4

73.4

128.5

129.0

Income from operations

139.8

125.5

277.4

250.5

Interest expense, net

27.4

6.8

52.6

8.3

Income before income taxes and equity method earnings

112.4

118.7

224.8

242.2

Income tax expense

41.5

33.9

85.6

84.9

Equity method investment earnings

12.1

6.2

32.1

16.8

Net income

83.0

91.0

171.3

174.1

Less: Income attributable to noncontrolling interests

6.4

3.8

11.3

7.3

Net income attributable to Lamb Weston Holdings, Inc.

$

76.6

$

87.2

$

160.0

$

166.8

Earnings per share

Basic

$

0.52

$

0.59

$

1.08

$

1.14

Diluted

$

0.52

$

0.59

$

1.08

$

1.13

Dividends declared per common share

$

0.1875

$

 —

$

0.3750

$

 —

Computation of diluted earnings per share:

Net income attributable to Lamb Weston Holdings, Inc.

$

76.6

$

87.2

$

160.0

$

166.8

Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated

0.5

0.5

1.3

0.9

Net income available to Lamb Weston common stockholders

$

76.1

$

86.7

$

158.7

$

165.9

Diluted weighted average common shares outstanding

146.9

146.3

146.8

146.3

Diluted earnings per share

$

0.52

$

0.59

$

1.08

$

1.13

(1)

On November 9, 2016, Lamb Weston Holdings, Inc. (“Lamb Weston”) separated from Conagra Brands, Inc. (formerly ConAgra Foods, Inc., “Conagra”) and became an independent publicly-traded company through the pro rata distribution by Conagra of 100% of the outstanding common stock of Lamb Weston to Conagra stockholders (the “Separation”). The combined and consolidated earnings in all periods prior to November 9, 2016, were carved out of Conagra’s consolidated financial statements. These financial statements may not reflect what the Company’s results of operations would have been had it operated as a separate stand-alone public company and may not be indicative of its future results of operations. These financial statements should be read together with the consolidated financial statements and notes in our fiscal 2017 Form 10-K and fiscal 2018 second quarter Form 10-Q.

(2)

The thirteen and twenty-six weeks ended November 26, 2017, include $4.0 million and $6.2 million, respectively, of expenses related to the Separation as discussed in footnote (1) above. The thirteen and twenty-six weeks ended November 27, 2016, include $9.0 million and $18.7 million, respectively, of Separation-related expenses.  In all periods, the expenses related primarily to professional fees and other employee-related costs.

November 26,

May 28,

2017

2017

ASSETS

Current assets:

Cash and cash equivalents

$

71.1

$

57.1

Receivables, less allowance for doubtful accounts of $0.6 and $0.5

224.4

185.2

Inventories

662.9

525.0

Prepaid expenses and other current assets

45.9

90.9

Total current assets

1,004.3

858.2

Property, plant and equipment, net

1,331.5

1,271.2

Goodwill

134.4

133.0

Intangible assets, net

36.3

37.2

Equity method investments

198.6

178.6

Other assets

9.8

7.4

Total assets

$

2,714.9

$

2,485.6

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

  Short-term borrowings

$

88.2

$

22.0

Current portion of long-term debt and financing obligations

39.3

37.9

Accounts payable

342.7

295.0

Accrued liabilities

176.3

200.5

Total current liabilities

646.5

555.4

Long-term liabilities:

Long-term debt, excluding current portion

2,353.2

2,365.0

Deferred income taxes

115.8

90.5

Other noncurrent liabilities

74.3

71.2

Total long-term liabilities

2,543.3

2,526.7

Commitments and contingencies

Redeemable noncontrolling interest

56.5

50.7

Stockholders' equity:

Common stock of $1.00 par value, 600,000,000 shares authorized; 146,257,130 and 146,080,901 shares issued

146.3

146.1

Additional distributed capital

(906.7)

(904.8)

Retained earnings

225.8

121.0

Accumulated other comprehensive income (loss)

5.4

(9.3)

Treasury stock, at cost, 49,691 and 6,143 common shares

(2.2)

(0.2)

Total stockholders' deficit

(531.4)

(647.2)

Total liabilities and stockholders’ equity

$

2,714.9

$

2,485.6

Twenty-Six Weeks Ended

November 26,

November 27,

2017

2016

Cash flows from operating activities

Net income

$

171.3

$

174.1

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of intangibles and debt issuance costs

66.6

52.1

Stock-based compensation expense

10.2

5.2

Earnings of joint ventures in excess of distributions

(9.3)

(2.8)

Deferred income taxes

19.4

(8.3)

Other

(2.2)

(0.4)

Changes in operating assets and liabilities:

Receivables

(39.2)

(45.8)

Inventories

(137.9)

(117.0)

Income taxes payable/receivable, net

6.5

 —

Prepaid expenses and other current assets

36.3

41.4

Accounts payable

89.1

59.8

Accrued liabilities

(28.6)

4.1

Net cash provided by operating activities

$

182.2

$

162.4

Cash flows from investing activities

Additions to property, plant and equipment

(154.0)

(127.8)

Proceeds from sale of assets

0.1

2.0

Additions to other long-term assets

(1.8)

 —

Net cash used for investing activities

$

(155.7)

$

(125.8)

Cash flows from financing activities

Proceeds from short-term borrowings, net

66.1

80.0

Proceeds from issuance of debt

 —

798.1

Debt repayments

(19.3)

(3.4)

Net transfers to Conagra

 —

(38.8)

Dividends paid

(54.8)

 —

Cash distributions paid to Conagra at Separation

 —

(823.5)

Payments of debt issuance costs

 —

(9.6)

Cash distributions paid to noncontrolling interest

(6.7)

(5.6)

Other

(1.2)

 —

Net cash used for financing activities

$

(15.9)

$

(2.8)

Effect of exchange rate changes on cash and cash equivalents

3.4

(0.8)

Net increase in cash and cash equivalents

14.0

33.0

Cash and cash equivalents, beginning of the period

57.1

36.4

Cash and cash equivalents, end of period

$

71.1

$

69.4

Thirteen Weeks Ended

Year-Over-

November 26,

November 27,

Year Growth

2017

2016

Rates

Price/Mix

Volume

Segment sales

Global

$

416.9

$

412.6

1%

3%

(2%)

Foodservice

272.8

250.6

9%

8%

1%

Retail

102.0

96.5

6%

4%

2%

Other

32.9

31.0

6%

11%

(5%)

$

824.6

$

790.7

4%

5%

(1%)

Segment product contribution margin (1)

Global

$

88.2

$

92.3

(4%)

Foodservice

92.2

80.2

15%

Retail

19.4

20.9

(7%)

Other

3.9

(0.4)

NM

203.7

193.0

6%

Other selling, general, and administrative expenses (2)

63.9

67.5

(5%)

Income from operations

$

139.8

$

125.5

11%

Items impacting comparability (2)

Expenses related to the Separation

$

4.0

$

9.0

Adjusted income from operations (3)

$

143.8

$

134.5

7%

(1)

Product contribution margin is defined as net sales, less cost of sales and advertising and promotion expenses. Segment product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period.

(2)

The thirteen weeks ended November 26, 2017 and November 27, 2016, include $4.0 million and $9.0 million, respectively, of expenses related to the Separation. The expenses related primarily to professional fees and other employee-related costs.

(3)

Adjusted income from operations is a non-GAAP financial measure. Management excludes items impacting comparability between periods as it believes these items are not necessarily reflective of the ongoing operations of the Company. These non-GAAP measures provide a means to evaluate the performance of Lamb Weston’s segments and the Company on an ongoing basis using the same measures that are frequently used by the Company’s management and assist in providing a meaningful comparison between periods. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. 

Twenty-Six Weeks Ended

Year-Over-

November 26,

November 27,

Year Growth

2017

2016

Rates

Price/Mix

Volume

Segment sales

Global

$

830.8

$

811.8

2%

2%

0%

Foodservice

552.2

510.9

8%

7%

1%

Retail

194.0

186.1

4%

(1%)

5%

Other

65.1

58.2

12%

9%

3%

$

1,642.1

$

1,567.0

5%

4%

1%

Segment product contribution margin (1)

Global

$

162.9

$

165.9

(2%)

Foodservice

183.1

159.7

15%

Retail

35.9

40.5

(11%)

Other

15.0

2.8

NM

396.9

368.9

8%

Other selling, general, and administrative expenses (2)

119.5

118.4

1%

Income from operations

$

277.4

$

250.5

11%

Items impacting comparability (2)

Expenses related to the Separation

$

6.2

$

18.7

Adjusted income from operations (3)

$

283.6

$

269.2

5%

(1)

Product contribution margin is defined as net sales, less cost of sales and advertising and promotion expenses. Segment product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period.

(2)

The twenty-six weeks ended November 26, 2017 and November 27, 2016, include $6.2 million and $18.7 million, respectively, of expenses related to the Separation. The expenses related primarily to professional fees and other employee-related costs.

(3)

Adjusted income from operations is a non-GAAP financial measure. Management excludes items impacting comparability between periods as it believes these items are not necessarily reflective of the ongoing operations of the Company. These non-GAAP measures provide a means to evaluate the performance of Lamb Weston’s segments and the Company on an ongoing basis using the same measures that are frequently used by the Company’s management and assist in providing a meaningful comparison between periods. Any analysis of non-GAAP financial measures should be done only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. 

Thirteen Weeks Ended November 26, 2017

Equity

Less: Income 

Net Income

Income

Method

Attributable to

Attributable

Income From

Interest

Tax

Investment

Noncontrolling

to Lamb

Diluted

Operations

Expense

Expense

Earnings

Net Income

Interests

Weston

EPS

As reported

$

139.8

$

27.4

$

41.5

$

12.1

$

83.0

$

6.4

$

76.6

$

0.52

Items impacting comparability (1) (2):

Expenses related to the Separation

4.0

 —

1.5

 —

2.5

 —

2.5

0.02

Total items impacting comparability

4.0

 —

1.5

 —

2.5

 —

2.5

0.02

Adjusted (3)

$

143.8

$

27.4

$

43.0

$

12.1

$

85.5

$

6.4

$

79.1

$

0.54

Thirteen Weeks Ended November 27, 2016

Equity

Less: Income 

Net Income

Income

Method

Attributable to

Attributable

Income From

Interest

Tax

Investment

Noncontrolling

to Lamb

Diluted

Operations

Expense

Expense

Earnings

Net Income

Interests

Weston

EPS

As reported

$

125.5

$

6.8

$

33.9

$

6.2

$

91.0

$

3.8

$

87.2

$

0.59

Items impacting comparability (1) (2):

Expenses related to the Separation

9.0

 —

3.3

 —

5.7