Lamb Weston Holdings, Inc.

Dan, welcome to the Lamb Weston First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Dexter Congbole, VP, Investor Relations of Lamb Weston. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's First Quarter 2020 Earnings Call. This morning, we issued our earnings press release, which is available on our website, lambweston.com. Please note that during our remarks, we'll make some forward-looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our filings with the SEC for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release. With me today are Tom Werner, our President and Chief Executive Officer, and Rob McNaught, our Chief Financial Officer. Tom will provide an overview of our performance as well as some comments on the current operating environment. Rob will then provide the details on our first quarter results. With that, let me now turn the call over to Tom.

Thank you, Dexter. Good morning, everyone, and thank you for joining our call today. We're pleased with our solid start to the year, with each of our core business segments driving volume, price mix, and earnings growth. Specifically, sales increased 8% behind strong volume growth. EBITDA, including unconsolidated joint venture, increased 9%, driven by strong sales growth and higher gross profit. Diluted earnings per share increased 8%, reflecting operating gains. and finally, we generated nearly $240 million of cash flow from operations. These results provide us with a good foundation to deliver on our full year commitments. They also reflect how our commercial and supply chain teams continue to execute on our strategic and operational objectives. For example, in our global segment, we drove strong growth by supporting customers in North America and internationally. We also continued to grow sales of limited time offering products in the U.S. and key markets in Asia, despite lapping a very strong prior year quarter. In our food service segment, we delivered our third consecutive quarter of volume growth behind sales of Lamb Weston branded products as our direct sales force continues to strengthen relationships with customers. In retail, our Alexia, grown in Idaho, and licensed branded products each grew volume. Grown in Idaho continued to expand distribution, helped in part by the recent launch of two new items that are phenomenal, dipper and waffle fries. And finally, our supply chain team continued to ramp up our new 300 million pound french fry line in Hermiston, Oregon, providing us with additional flexibility to service and upgrade other production lines that have been operating at peak capacity. Although we delivered a solid quarter, we did face some challenges in our supply chain. As you know, we've enjoyed the benefits of operating our manufacturing assets at very high utilization rates over the past couple of years. When possible, and without compromising food or employee safety, we've taken opportunities to defer maintenance in order to continue to support our customers' growth. However, it has also placed a strain on our production assets. During the quarter, that strain showed. As Rob will discuss later, we had instances of production issues resulting in unplanned maintenance and repair costs, as well as some unscheduled operating downtimes. In turn, this increased our costs. Our manufacturing plants are now operating better. While we're making good progress and working through the issues that affected our performance, we expect to realize some residual impact on our results in the near term. Before turning to the operating environment, let me give you a few quick updates. First, on a preliminary basis, we believe the crop in our growing areas in the Columbia Basin and Idaho, where we source the vast majority of raw potatoes, will be consistent with historical averages. While crop yields in Alberta and Minnesota may be just below average due to weather events, we do not expect this to have a notable impact on our overall results. So at this time, we do not expect any significant issues with the crop in North America. As usual, we'll provide our updated view of the crop's yield and quality and how we expect the crop will hold up in storage when we report our second quarter results in early January. These factors are all key to determining how the potatoes perform in our production facilities and, along with contracted raw potato prices, our actual costs for raw potatoes. Second, our early read on the potato crop in our growing areas in Europe is that it will be a bit below the long-term average. This is due to hot weather conditions this summer. However, despite being below average, we believe it will be better than last year's historically poor crop. As a result, we expect that Lamb, Wesson, and Myers performance will gradually improve as the year progresses as cost pressures ease in the second half of our fiscal year once the new potato crop begins to be processed. And finally, with respect to contracts with our large customers, we finalized most of the agreements that are up for renewal this year. In aggregate, we're satisfied with how the discussions progressed and the terms on which we ultimately agreed, including price. These contracts reflect our balanced approach to improving price and mix in order to offset inflationary pressures and, importantly, to maintain and reinforce our strategic customer relationships. Now turning to our operating environment. We believe the current global environment is generally favorable. We believe industry capacity utilization rates in North America remain elevated during the first quarter. For the remainder of fiscal 2020, we anticipate that new capacity in North America will allow processors to operate their facilities closer to normalized rates, but utilization rates will remain elevated. With respect to demand, growth in our physical first quarter was strong. In the U.S., positive restaurant traffic trends continued to be supported by low unemployment. Quick-serve restaurant traffic growth was especially strong, led by growth at chicken-based outlets. Growth in french fry servings was also encouraging. These trends helped drive our global segment's strong volume growth in the quarter. In our key international markets, demand continued to grow in line with recent trends. and in Europe, demand growth was solid despite higher frozen potato prices as a result of last year's crop. While recent frozen potato demand has been higher than average, we're monitoring signs of softening macroeconomic conditions which may temper demand growth towards more normalized rates. However, French fry demand has proven somewhat resistant to the effect of challenging economic times as most fries are consumed at QSRs. Generally, consumer traffic at QSRs tends to weather periods of slower economic growth better than fast casual and other casual restaurant formats. That's why we've stayed aligned with our strategic QSR customers and partnered with up-and-coming QSRs in many of our key markets. As a result, along with our broad market coverage, advantage global manufacturing footprint, focus on execution, and commitment to serving our customers. We believe we're well positioned to deliver our financial objectives for the year and create value for our stakeholders over the long term. So in summary, we delivered a strong start to the year despite some manufacturing related challenges. The potato crop in North America is in line with historical averages and the crop in Europe is improved versus the prior year. We're satisfied with the outcome of customer contract renewals. and we're on track to deliver on our physical 2020 financial targets. And one more thing before I turn it over to Rob. Earlier this year, Rick Martin, our global head of supply chain, told me of his intention to retire. For the past 25 years, he's been a tremendous asset to Lam Wesson and especially to me through the last three years as we transitioned to a standalone public company. Rick's been a steady hand leading the supply chain organization during our transition including building and starting up several new lines to support our growth. He's also been a tireless champion for safety in our manufacturing facilities and a great partner for me and my management team. On behalf of Lam Wesson, we wish Rick a happy and healthy retirement. And as we announced a couple of months ago, we're welcoming Gerardo Schiffler as our new supply chain leader. Gerardo has more than 25 years of supply chain experience, most recently as the Vice President of Global Operations at Mondelez International, where he oversaw a major global restructuring program to optimize the global supply chain footprint that included more than 50,000 employees at more than 150 global locations. Prior to Mondelez, he spent more than 20 years at Procter & Gamble in a variety of roles of increasing responsibility. We're happy to have Gerardo join the team and to leverage his experience as we make progress against our strategic plan. Now let me turn the call over to Rob to provide details on our first quarter results.