Lamb Weston Holdings, Inc.

and welcome to the Lamb-Weston First Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dexter Congolet, VP Investor Relations of Lamb-Weston. Please go ahead.

Good morning, and thank you for joining us for Lamb-Weston's First Quarter 2022 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 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 Warner, our President and Chief Executive Officer, and Bernadette Madriada, our Chief Financial Officer. Tom will provide some comments on our performance, as well as a brief overview of the current operating environment. Bernadette will then provide details on our first quarter results and fiscal 2022 outlook. With that, let me now turn the call over to Tom.

Thank you, Dexter. Good morning, and thank you for joining our call today. We're pleased with our strong sales growth in the quarter, which reflects the ongoing broad recovery demand across our out-of-home sales channels, as well as continued improvement in our key international markets. However, our margin improvement lags our volume recovery as a result of the timing of pricing actions to offset cost inflation, as well as challenging macro factors that increase our cost and affected our production run rates and throughput. These ongoing challenges, combined with the extreme summer's heat, negative impact on potato crops in the Pacific Northwest will result in higher costs as the year progresses. As a result, we now expect our gross profit margins will remain below pre-pandemic levels through fiscal 2022. We believe many of these costs and supply chain challenges are transitory, and we're taking aggressive actions to mitigate their effects on our operations and financial performance. We're confident that our actions, along with our investments to improve productivity and operations over the long term, will get us back on track to deliver higher margins and sustainable growth. Before Bernadette gets into some of the specifics of our first quarter results and outlook, let's briefly review the current operating environment, starting with demand. In the U.S., we continue to be encouraged by the pace of recovery in restaurant traffic and demand for fries. Overall, restaurant traffic has largely stabilized at about 5% below pre-pandemic levels, led by the continued solid performance at quick service restaurants. Traffic at full service restaurants continued to rebound in June and July, but it did soften a bit in August as the Delta variant surged across most of the country. Demand improved at non-commercial food service outlets, especially in the education market, which helped to offset the near-term slowdown in full-service restaurants. The fry attachment rate in the U.S., which is the rate at which consumers order fries when visiting a restaurant or other food service outlets, also continued to help support the recovery in demand by remaining above pre-pandemic levels. Demand in U.S. retail channels also remained solid, with overall category volumes in the quarter still up 15% to 20% from pre-pandemic levels. Outside the U.S., overall Friday demand continued to improve in the quarter, although the rate of improvement varied widely among our key international markets. Demand in Europe, which is served by our Lamb, West, and Meyer joint venture, gradually recovered as vaccination rates climbed. Demand in Asia and Oceania was solid, but also softened in August due to the spread of the Delta variant, and South America remained challenged, especially in Brazil. So overall, we're happy with the recovery in global demand and believe it provides a solid foundation for continued volume growth in fiscal 2022. With respect to the pricing environment, I'm pleased with the progress of our recently implemented pricing actions to manage sharp input cost inflation. In our food service and retail segments, as well as in some of our international business, we'll begin to realize some of the pricing benefits in the second quarter and more fully in the third quarter. In our global segment, the contract renewables for large chain restaurant customers have largely progressed as we expected, and we'll generally begin to see the impact of any pricing actions associated with these contracts in our third quarter. In addition, we'll continue to benefit from price escalators for most of the global contracts that are not up for renewal this year. These price adjustments reset based on the underlying timing of the contract renewals, but largely during our physical third quarter. Overall, we expect our price increases across our business segments will, in aggregate, mitigate most of the cost inflation. However, depending on the pace and scope of inflation and the increase in potato costs resulting from this year's poor crop, we may take further price action as the year progresses. In contrast to demand and pricing, the manufacturing and distribution environment continues to be difficult. Our supply chain costs on a per pound basis have increased significantly due to input and transportation cost inflation, as well as labor availability and other macro supply chain disruptions that are continuing to cause production inefficiencies across our global manufacturing network. Although we're making gradual progress to mitigate these challenges, they have slowed our efforts to stabilize our manufacturing operations during the first half of fiscal 2022. As a result, we expect the turnaround in our supply chain will take longer than we initially anticipated. Now turning to the crop, the early read on this year's crop in the Columbia Basin, Idaho, and Alberta indicates that it will be well below average levels in both yield and quality due to the extreme heat over the summer. As we're still in the middle of the main crop harvest, the extent of the financial impact of the crop condition will be determined over the coming quarter as the harvest is completed. While we expect this impact will be significant, we're examining a variety of levers to mitigate the effect on our earnings as well as on customer service and supply. As usual, we'll provide a more complete assessment of the crop and its impact on earnings when we release our second quarter results in early January. So, in summary, I feel good about the overall pace of recovery in French fry demand, especially in the U.S. I believe it provides a solid foundation for future growth. I also feel good about the current pricing environment and how we're executing pricing actions in the marketplace. We do expect higher potato costs, input in transportation inflation, labor challenges, and other industry-wide operational headwinds to continue for the remainder of this fiscal year. While we're taking specific actions to mitigate these challenges, they will keep our gross margins below pre-pandemic levels through fiscal 2022. And finally, I'm confident that we're taking the right steps to get our company back on track to delivering more normalized profit margins. Let me now turn the call over to Bernadette to review the details of our first quarter results in our physical 2022 outlet.