Lamb Weston Holdings, Inc.

Please stand by, we're about to begin. Good day and welcome to the Lamb-Weston third quarter 2022 earnings call. Today's call is being recorded. At this time, I'd like to turn the call 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 third 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 Finance Officer. Tom will provide some comments on our performance, as well as an overview of the current operating environment. Bernadette will then provide some details on our third quarter results and updated 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. First of all, I want to thank all my colleagues for their continued dedication and perseverance to keep Land Weston as an industry leader and a strong business partner. Our solid financial results in the third quarter are a direct result of how well our manufacturing, supply chain, and commercial teams have remained focused on improving our operations and serving our customers during a challenging macro environment, which includes the impact of an exceptionally poor potato crop. We continue to be encouraged by strong French fry demand and feel good about our continued progress. Specifically, in the third quarter, we delivered solid sales growth and drove sequential and year-over-year gross margin expansion. And we did this despite the impact of Omicron variant slowing restaurant traffic and disrupting our production and distribution operations more than we expected. We benefited from our previously announced pricing actions to mitigate the significant cost inflation across our supply chain. We've also been driving improvements in our manufacturing operations as we focus on what's in our control. This includes mitigating some of the effects of the poor potato crop with product specification changes and portfolio optimization work that we've discussed previously. Factory labor remains challenging as we remain below preferred staffing levels, but we're making steady progress in a highly difficult labor market. We're addressing the labor gap by focusing on retention and new ways of attracting talent. We'll continue to push hard on our staffing initiatives and are encouraged by the improvements we're seeing. However, we'll take time to get all of our factory staff where they need to be. Like others, we're managing through freight challenges including both cost increases and shipping delays. The freight challenges are impacting our top line as it limits our ability to service full demand. This is caused by a lack of containers for international and domestic shipments and truck driver shortages. This combined with higher fuel costs has also increased our cost to deliver products. We're continuing to navigate through these and other operating challenges and remain on track to deliver our financial commitments for the year. Our capacity expansion investments in Idaho and China also remain on track and will have us well positioned to support increasing customer demand over the long term. Let me provide some brief updates on the operating environment before turning the call over to Bernadette. Let's start with demand. In the U.S., overall fry demand and restaurant traffic in our third quarter remain solid. although it weakened temporarily as the Omicron variant spread quickly. Omicron's impact peaked in January and affected consumer traffic at both quick service and full service restaurants. In addition, some restaurants closed temporarily or reduced operating hours due to staff shortages, which further impacted demand. Restaurant traffic, however, has rebounded to pre-Omicron levels. 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, has been fairly consistent since the beginning of the pandemic and remains above pre-pandemic levels. Going forward, we expect restaurant traffic and consumer demand for fries in the U.S. to remain strong, although it may be more volatile in the near term as consumers face significant cost inflation. In contrast, fry demand in retail channels may continue to benefit if demand in out-of-home channels is affected. Outside the U.S., demand in Asia and Oceania remains stable. However, we have not been able to meet that demand due to the limited availability of shipping containers for export. While we expect overall demand in these regions to return to free pandemic levels, Widespread COVID-related government restrictions in key markets such as China may lead to demand volatility in the near term. Demand in Europe, which is served by our Lam West and Meyer joint venture, has also been fairly stable, although it was temporarily affected by the spread of Omicron during the quarter. As in the U.S., we expect demand in Europe may be volatile in the upcoming months as cost inflation and COVID variants temper restaurant traffic. So overall, we expect that demand in the near term will be choppy. We remain confident in the long-term resiliency and growth prospects of the category in the U.S. and our key international markets. With respect to pricing, our price mix growth accelerated sequentially in the third quarter as we continued to execute on our previously announced product and freight pricing actions in our food service and retail segments to offset inflation, and as we began to implement pricing actions in our global segment. Going forward, if we see further inflation, we're prepared to take additional pricing actions, as well as drive opportunities to improve product and customer mix. To that end, last week we began implementing another round of pricing actions in our food service and retail segments, and we expect to see the benefits of these actions gradually build over the next six months. In our global segment, contracts representing about one-third of the segment's volume are up for renewal this year. We've begun discussions with those customers and expect to have most of the contract terms agreed by early fall. With respect to this year's upcoming potato crop, we've agreed to a 20% increase in the contracted price per pound in our primary growing regions in the Columbia Basin, Idaho, Alberta, and the Midwest. This increase reflects our approach for annual price changes that reflect the cost to grow plus an appropriate return for our growers such that they are viable over the long term. We'll begin to see the impact of these higher contracted potato prices during the second quarter of fiscal 2023 as we begin to process the early potato varieties that are harvested in mid-summer. In addition, over the past few months, we've partnered with our growers to contract for acres that represent nearly all of our projected needs associated with this year's crop. The number of acres contracted assumes an average crop year. Planning of this year's potato crop started in March and typically concludes by the end of April, and we'll provide our usual crop updates during future quarterly earning calls as the growing season progresses. Finally, our hearts go out to all the people affected by Russia invasion of Ukraine. Our exposure to Russia is indirect as it runs through our 50% ownership in Land West and Meijer. Last month, the Russia JV began winding down production of Land Weston branded products and paused construction of its previously announced capacity expansion. We continue to monitor the situation, and any decisions regarding that operation will be made in conjunction with our partner in Europe. So, in summary, we feel good about our progress in the quarter, especially given the highly challenging operating environment, and we remain on track to deliver our financial commitments for the year. Our pricing actions and cost mitigation efforts enabled us to drive sequential and year-over-year gross margin expansion. We've agreed on contract price and acres to be planted for this year's potato crop, and we remain confident in the resiliency and long-term growth prospects of the category, although demand may be volatile in the near term. Let me now turn the call over to Bernadette to review the details of our third quarter results and our updated fiscal 2022 outlook.