Lamb Weston Holdings, Inc.

Please stand by. We're about to begin. Good day, and welcome to the Lamb-Weston fourth quarter and fiscal year 2020 earnings call. Today's conference is being recorded, and at this time, I'd like to turn the conference over to Mr. Dexter Congvalet, VP, Investor Relations of Lamb-Weston. Please go ahead, sir.

Good morning, and thank you for joining us for Lamb-Weston's fourth quarter. One second. My screen just went blank, possibly. Fourth quarter in fiscal 2020 earnings call. This morning, we issued our earnings press release, which is available on our website, labweston.com. Please note that during our remarks, we'll make some forward-looking statements about the company's expected 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 SEC filings 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 McNutt, our Chief Financial Officer. Tom will provide an overview of the near-term demand environment, as well as our efforts to manage through the COVID-19 pandemic crisis. Rob will then provide some details on our fourth quarter results, financial liquidity, and trends we're seeing so far in the first quarter of fiscal 21. 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. Before getting into our performance in the quarter, I want to thank the entire Lamb-Wesson team for their commitment to support our communities, our customers, and our consumers during these trying times while keeping themselves and their colleagues safe. We should be proud of doing our part to help feed people around the world. It's their commitment and spirit of teamwork that makes me so honored to be part of this great company. Now let me turn to the performance. The final months of physical 2020 were some of the most challenging in Lam Weston's history. After starting to realize the impact of government efforts to control the spread of the coronavirus in China on our local operations in February, we saw a more severe effect on our overall business beginning in late March as governments in the U.S. and Europe took actions to try to slow the spread of the virus. These government restrictions on restaurants and other food service businesses abruptly and significantly reduced restaurant traffic and the demand for fries. In addition, the initial drop in demand was so steep and quick that customers needed to adjust inventory levels, which further reduced our shipments. As a result, our sales and earnings fell in the fourth quarter. Starting in May, U.S. demand for fries began to recover, and that improvement has continued through mid-July. The recovery has been led by quick-service restaurants as consumers leverage drive-through options. By the end of June, QSR traffic rebounded significantly. As expected, full-service restaurants were affected much more severely than QSRs. They adapted by increasing carry-out and delivery options, and starting in late May, consumer traffic began to increase as certain state governments gradually eased restrictions to allow for more on-premise dining. However, while steadily improving, our shipments to this channel currently remain well below prior year levels. Fry demand by our non-commercial customers such as hotels, schools, universities, and sporting venues was hit hard as traffic at these outlets suffered. Our shipments to these customers remain very soft and will likely remain so until the pandemic ends and consumer confidence improves. In contrast, consumers sharply stepped up food-at-home purchases in the fourth quarter, and retail purchases remain a bright spot for the category and for Lamb Weston. Friday Man in Europe, which is served through our Lamb Weston-Meyer joint venture, has also improved since the end of May. Although a high proportion of our sales are to QSRs, most of the consumption is dine-in or takeaway, since drive-thru options are much more limited. These QSRs act more like full-service restaurants. Like in the U.S., weekly shipments bottomed in April, and they have steadily improved since then, but currently remain well below pre-COVID levels. Fry demand in our other key international markets has been mixed. China's recovery has been solid, with our weekly shipments in July approaching pre-COVID levels. Demand in Asia and outside of China has been varied, but consumption overall has held up better than in the U.S. and Europe. Consumption in Latin America, including Mexico, held up relatively well in the fourth quarter, but began to soften at the end of May. We have been encouraged by the breadth and the pace of recovery in Friday Man. It's been faster than we anticipated when the crisis first arose. However, there's still a great deal of uncertainty regarding the recovery's sustainability. For example, recent actions by California and Texas to reimpose restrictions on restaurants and food service outlets, as well as New York City's decision to postpone lifting restrictions for on-premise dining, illustrate how volatile and fragile the U.S. recovery and demand can be. Because of this uncertainty, we are not providing a financial outlook for fiscal 2021. Instead, Rob will detail later, we're providing trends in our shipments that we have observed so far during our physical first quarter. Managing through this crisis has been difficult, and I'm proud of how we're executing on a range of priorities and actions to navigate the business in the current environment and position us for success as the band continues to recover. First, we're prioritizing the health and safety of our Lamb, Weston team, and have adopted enhanced employee safety and sanitation protocols at each of our manufacturing, commercial and support locations. Nonetheless, we've had a number of production employees contract the virus, which has required us to temporarily shut down manufacturing lines to be sanitized. Unfortunately, the possibility of temporarily shutting down lines remains a risk until the virus is under control. We're always seeking ways to improve testing processes that can help us identify affected employees before they show up for work. The safety of our employees has and will continue to be our number one priority. Second, we're working to remain a trusted and valued business partner for our customers as they manage their supply chains and commercial operations. For example, for our larger chain restaurant customers, we've helped them manage inventory levels in a time of heightened volatility. We've also begun to help customers identify the best fries for delivery and carryout, as well as develop limited time offering products that would be available as soon as this fall in the U.S. For independent operators, our direct sales force has been a real asset in allowing us to stay close with customers to identify the appropriate products for simplified menus, creatively broaden their fry offerings and react quickly to customer needs in this volatile market. Third, we're adapting our manufacturing operations to meet the new demand environment. While necessary, our actions and the resulting disruption has come at a cost during the quarter. For example, we've incurred incremental costs to redirect certain manufacturing lines to make retail products. We've also adjusted production schedules and run times in an effort to spread production across our network and keep factory employees on payroll. Since the demand environment remains fluid, we'll continue to evaluate further actions to align our manufacturing operations as appropriate. However, meeting customer demand with a workforce that's being affected by the virus creates a difficult scheduling exercise for our manufacturing team, which will continue to make capacity and cost management challenging. Finally, we've significantly enhanced our liquidity position by securing additional debt financing and taking steps to preserve cash. Based on these actions and our ability to generate cash, we feel confident enough about our liquidity that we fully repay the borrowings under our credit facility in July. In summary, we believe that by executing on these priorities and actions, we're positioned to navigate through an uncertain environment in fiscal 2021. and to emerge as a stronger company once we're on the other side of this virus. Before handing off the call to Rob, let me quickly update you on a couple of items. With respect to this year's potato crop at this point, the crops in our North America growing areas and in Europe are consistent with historical averages. As usual, we'll have more insight on the yield and quality of the crop after the harvest takes place later in the year. With respect to our customer contract negotiations, we're encouraged by how the discussions have been progressing and have already finalized a handful of the global and regional restaurant chain customer contracts. For those remaining contracts, we'll remain disciplined and take an approach designed to maintain and reinforce our strategic customer relationships. So as you can see in the near term, we're taking the necessary actions across our manufacturing, commercial, and support teams to navigate the market crisis including, most importantly, prioritizing the health, safety, and well-being of our employees and partnering with our customers and suppliers across the globe. We're facing an unprecedented, challenging, and volatile operating environment that will likely continue for the foreseeable future, but we remain confident in our strategies and the long-term health and structure of the category. Let me turn the call over to Rob.