Lamb Weston Holdings, Inc.

Welcome to the Lamb-Weston Fourth Quarter and Full Year 2024 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dexter Conboy, Vice President, Investor Relations and Strategy. Please go ahead, sir.

Good morning, and thank you for joining us for Lamb-Weston's Fourth Quarter and Fiscal Year 2024 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 that 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 SAC 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 gap to non-gap reconciliations in our earnings release. With me today are Tom Warner, President and Chief Executive Officer, and Bernadette Madriada, our Chief Financial Officer. Tom will provide an overview of our strategies and priorities for the upcoming year, the current operating environment, and our initial thoughts on this year's potato crop. Bernadette will then provide details on our fourth quarter results, as well as our outlook for fiscal 25. With that, let me now turn the call over to Tom.

Thank you, Dexter. Good morning, and thank you for joining our call today. Our financial results for the fourth quarter and for the year are disappointing, reflecting executional challenges both commercially and in our supply chain, as well as soft global demand for fries. While Bernadette will cover our fourth quarter results in more detail later, our sales and earnings performance fell well short of our targets due to a combination of targeted investments in price, a decision to voluntarily withdraw a product to ensure we meet our quality standards, and more importantly, those of our customers, higher-than-anticipated market share losses, an unfavorable mix, and softer-than-expected restaurant traffic trends in both the U.S. and many of our key international markets. This level of execution is unacceptable, and I and my leadership team take full responsibility for operating and financial results. As we outlined in our Investor Day last October, We believe that frozen potatoes is an attractive, growing global category, and that we have built a solid foundation to serve our customers and this market over the long term. This includes some key actions taken in fiscal 2024, such as integrating the acquisition of our former European joint venture, starting up state-of-the-art processing facilities in China in October 2023, and American Falls, Idaho in May of 2024, strengthening our product portfolio by introducing innovative technologies to expand our total addressable market, implementing pricing actions that offset multiple years of high input cost inflation, taking a big step in upgrading our IT infrastructure by cutting over key central systems processes in North America to a new ERP system, and continuing to drive supply chain productivity savings across our global production network. We believe we're focused on the right strategies and priorities to get land west and back on track to drive sales growth, reduce costs, improve profitability, and generate attractive returns over the long term. That said, the operating environment has changed rapidly during fiscal 2024 as global restaurant traffic and frozen potato demand softened. In fact, the downward traffic trends accelerated during the back half of the year and into early fiscal 2025. This has led to an increase in available industry capacity in North America and Europe. We believe this industry supply-demand imbalance will persist through much, if not all, fiscal 2025. Although this has no impact on our long-term strategies, we are making some operating adjustments in the near term to support improved execution, competitiveness, and our financial results. We are reinvigorating volume growth by matching the right product at the right price to fit customer needs and by also leveraging limited time offerings and innovation to help our customers drive traffic. We're targeting specific investments in price and trade support to protect share and win new business. We're aggressively looking at opportunities to reduce costs further by driving supply chain productivity and tightly managing operating expenses. We're leveraging recent capacity investments to increase flexibility in managing our manufacturing footprint to balance production and shipments. We're reshaping future investments to modernize production capabilities to better match the demand environment. And we're simplifying our key processes to make it easier for customers to do business with Lamwesson. These priorities will change how we expect to drive sales and earnings growth in fiscal 2025. Specifically, our sales growth will be largely volume-driven, unlike the price-driven top line that we've delivered in recent years. Overall, we expect a net impact of our inflation-driven pricing actions in the aggregate will have minimal contribution to our net sales as we employ targeted investments in price to support volume growth. As a result, we expect our earnings performance will be driven by a combination of volume growth, improved mix, and cost savings. In recent years, our earnings growth has been largely driven by price until lesser extent mix. Our expectation for volume growth is dependent in part on an improvement in restaurant traffic trends. According to restaurant industry data providers, U.S. restaurant traffic softened over the past year as consumers continued to adjust to the cumulative effect of menu price inflation. During our physical fourth quarter, overall U.S. restaurant traffic as well as QSR traffic was down about 3% versus the prior year. Traffic at QSR chains specializing in hamburgers, a highly important channel for fry consumption, was down more than 4%. In addition, traffic trends in QSR hamburger weakened sequentially each month of the quarter, with May down nearly 6%. However, we're encouraged that the QSR chains, including QSR hamburger chains, have increased promotional activities to drive restaurant traffic. Given the recent introduction, we believe these promotions did not affect traffic during a physical fourth quarter, and we have not yet received comprehensive data that would indicate a more recent benefit on traffic. But we expect that these promotional efforts will have a positive effect on traffic as they have done so in the past. Outside the U.S., overall restaurant traffic trends in our key international markets in the fourth quarter were generally consistent with what we observed in the third quarter. Overall traffic was up in France and Italy, down modestly in Germany and Spain, and down about 2% in the U.K., our largest market in Europe. In Asia, overall restaurant traffic grew in both China and Japan. While global restaurant traffic trends were mixed, fry attachment rates in the US, Europe, Japan, and China were largely steady. With our key international markets largely stable and the potential for a tailwind from promotional activity in the US, we believe the pressure on restaurant traffic and demand is temporary and remain confident that the global fry category will return to its historical growth rate as consumers continue to adjust to higher menu prices. Nonetheless, we've taken a cautious view of the consumer and have not incorporated any change to current trends in our physical 2025 outlook. As a result, we expect our volume to decline during the first half of physical 2025. Turning now to the upcoming potato crop. We're harvesting and processing the early potato varieties in North America, and initial indications are that this portion of the crop is consistent with historical averages. At this time, the potato crops in the Columbia Basin, Idaho, Alberta, and the Midwest that will be harvested in the fall appear to be largely in line with historical averages as growing conditions in these regions have been generally favorable. That said, we have not yet seen what impact, if any, the recent heat wave may have on the crop. As a reminder, in North America, we've agreed to a 3% decrease in aggregate and contract prices for the 2024 potato crop. and we would begin to realize the benefit of these lower potato prices beginning in our physical third quarter. In Europe, heavy rainfall in the spring in the industry's main growing region in the Netherlands, Belgium, northern France, and northern Germany delayed the completion of planning by about seven weeks. As a result, the futures index for European processing potatoes has climbed significantly, reflecting the market's expectation for a below-average crop. Based on our practice of purchasing a higher portion of our raw potatoes using fixed price contracts, we believe our exposure to the higher market price is less than that of our European competitors. Still, we expect our potato costs in Europe to increase as prices governed under fixed price contracts are up mid to high single digits. We'll provide more detail on the crops in both North America and Europe when we report our first quarter results in early October in line with our past practice. So in summary, we believe we built a solid foundation to support our customers and drive improvement in our financial performance. We continue to operate and invest in this business for the long term and are making the appropriate adjustments this year to manage through the current challenging environment. We're encouraged by the actions that chain restaurants are taking to improve restaurant traffic, as well as the traffic trends in most of our key international markets, but we took a cautious view on the consumer when we developed this year's financial targets. And finally, at this time, we expect the potato crop in North America will be consistent with historical averages, but that the crop in Europe will likely be below average. Let me now turn the call over to Bernadette for more detailed discussion of our fourth quarter results and our physical 2025 outlook.