Lamb Weston: Anyone know much about this company?

[Aseahawkfan]

I watching a Youtube video where a big hedge fun investor was investing in Lamb Weston because apparently potato goods are in high demand. Lamb Weston is a big potato processing company. LW is the stock ticker.

I know Riverdog knows this industry.

[NorthHawk]

I don't know much about it but if you haven't already found out, here is some background:

Lamb Weston is the world's second-largest producer of branded and private-label frozen potato products, such as French fries, sweet potato fries, tater tots, diced potatoes, mashed potatoes, hash browns, and chips. The company also has a small appetizer business that produces onion rings, mozzarella sticks, and cheese curds. Including joint ventures, 52% of fiscal 2021 revenue was U.S.-based, with the remainder stemming from Europe, Canada, Japan, China, Korea, Mexico, and several other countries. we estimate Lamb Weston's customer mix is 58% quick-serve restaurants, 19% full-service restaurants, 8% other food service (hotels, commercial cafeterias, arenas, schools), and 16% retail. Lamb Weston became an independent company in 2016 when it was spun off from Conagra.

Here's a different view from the company perspective:
https://www.businesswire.com/news/home/ ... 006081/en/
$0.24/share quarterly dividend in June

It would seem that if you think the restaurant and food service industry is going to take off, it might be a company of interest and looking at the 5 year chart, it seems to be cyclical in its stock price (if you value that information).
There have been a couple of 40 and 50% price drops in 2020 and 2021. I don't know why, though.
But you probably already have this info.
Good luck!

[I-5]

Wow that name is a blast from the past. I am a creative director and one of the first jobs I worked on out of school was a frozen packaging project for Lamb-Weston.

[Aseahawkfan]

I was looking over the metrics for this company. They are definitely growing. They may have pricing power which if margins stay constant would see there profits rise with revenue making them more valuable.

I was wondering if RD worked at Lamb-Weston. He said his old employer was looking to expand capacity indicating robust demand. If that is the case, might be a worthwhile investment for some gains.

I would like to hear from our resident former Big Corporate Potato manager. Can we make money investing in Big Potato?

[RiverDog]

That's my former employer!

It's been close to 5 years since my last day of actual work, and I don't, nor never had, owned stock in the company so I'm not a real good resource for info about the company's financial position, but I can give you a background of the company.

We are the largest potato processor in North America, with production facilities in Washington located in Quincy, Warden, Connell, Pasco, and Richland, two plants in Oregon at Hermiston and Boardman, two in Idaho at Twin Falls and American Falls, one in Tabor, Alberta, one in Park Rapids, Minnesota, and one in Delhi, Louisiana. The major product is French fries, but they come in all kinds of different styles and shapes, some with coatings and flavorings, some peeled, others 'natural' or peel on. We also make hash brown patties, frozen mashed potatoes, tater tots, etc. The facility in LA produces exclusively sweet potato products.

The company is very image conscious, our employees are generally paid above the industry average with very good benefits of which I've been taking advantage of in my retirement. About half of our domestic plants are union shops.

Our two main competitors are JR Simplot of Boise, ID, and McCain's, a Canadian based company. We make French fries and other potato products for all the major fast food chains, including McD's, BK, Chick-fil-A, et al. So goes the fast food business, so goes LW's business. Very little of the product line is sold as retail, in other words, frozen potatoes you can buy in a supermarket. They don't carry a very high profit margin. The real money is in institutional sales, like restaurants, schools, the government, etc, customers that buy French fries in the millions of pounds.

Sales at fast food restaurants fluctuates with the travel and vacation industries. People are more likely to go into a McDonald's when they are traveling vs. at home dining. Since the travel industry, despite the high gas prices, has boomed this past year due to pent up demand post Covid, demand for our products has also seen an increase, which is why there's pressure on them to expand capacity even though they don't have the people to staff them.

One of the big focuses of the company is expanding their international presence. We do some international business but transporting frozen potatoes across an ocean is very expensive, so there's a big push to get the production facilities within the markets. We had a plant in Russia, but since LW is a very socially conscious company, they closed the plant and brought home all their American employees within a few days after the Russian invasion of Ukraine. We have a plant in China and are building a 2nd. When I left, we had a plant in England and two in the Netherlands. The friend of mine that I've talked about that I was a mentor to, a native Peruvian and worked as the production manager of our new joint venture operation in Argentina, their first in South America, told me last week that LW has decided to up their investment percentage in the plant he managed, from 50% to 90%, an indication that they are pleased with the results of that venture, also a feather in the cap to my friend as he was the first and only American at that plant when they first acquired an interest in it. Their goal is to exploit the Brazilian market.

So my investment advice would be to look at the indicators in the travel industry and fast-food restaurant business in general. If you see a slowdown of those businesses, it's probably not a good investment. It used to be that demand fluctuated in proportion to the price of gas, but this year, demand didn't drop as people kept traveling despite the high gas prices. The travel itch from 2 summers of the pandemic was strong enough to overcome the high gas prices. People weren't about to be confined to their homes for a 3rd summer.

[Aseahawkfan]

Thanks for the info, RD.

Fast food stays pretty strong in good and bad economies. Fast food is always cheaper than eating out and for people who don't like to cook a lifesaver. With inflation driving prices up and employment as high as it is, seems I could see fast food demand staying high for a while. If LW is growing internationally, that could be a big driver of growth.

I'm surprised they didn't give you any stock options. Maybe they went public only recently or had some kind of merger.

[RiverDog]

Thanks for the info, RD.

Fast food stays pretty strong in good and bad economies. Fast food is always cheaper than eating out and for people who don't like to cook a lifesaver. With inflation driving prices up and employment as high as it is, seems I could see fast food demand staying high for a while. If LW is growing internationally, that could be a big driver of growth.

I'm surprised they didn't give you any stock options. Maybe they went public only recently or had some kind of merger.

It didn't used to stay strong in good and bad economies. Back in the 90's prior to the Gulf War when gas prices skyrocketed, we were shutting down lines and laying off people. Fast food is discretionary spending and one of the first things that families cut when money is tight. They don't travel and the traveling they do is closer to home, so they don't eat out.

But that seemed to have changed in this past recession. As a rule, with gas prices going to unprecedented heights, you would have thought that it would have deterred people from traveling, but that didn't happen, which is one of the reasons why gas prices kept going up, because people didn't cut back on their traveling. Is it just because of such pent up demand after Covid or does it signal a permanent change in consumer habits? People had more money during this recession due to all the freebie handouts the government gave out.

[Aseahawkfan]

It didn't used to stay strong in good and bad economies. Back in the 90's prior to the Gulf War when gas prices skyrocketed, we were shutting down lines and laying off people. Fast food is discretionary spending and one of the first things that families cut when money is tight. They don't travel and the traveling they do is closer to home, so they don't eat out.

But that seemed to have changed in this past recession. As a rule, with gas prices going to unprecedented heights, you would have thought that it would have deterred people from traveling, but that didn't happen, which is one of the reasons why gas prices kept going up, because people didn't cut back on their traveling. Is it just because of such pent up demand after Covid or does it signal a permanent change in consumer habits? People had more money during this recession due to all the freebie handouts the government gave out.

I can see it happening during the 2008 Housing Crash as that was the worst recession ever and the second worse economic event to The Great Depression. I'm LW crashed in the 90s.

I'm thinking fast food may have become more resistant during recessions because of their value menus. When I was young fast food was a treat and still relatively expensive compared to buying regular food from the store. At some point fast food started value menus and started to appeal to the lower income classes getting their food costs and ability to price low compared to low cost grocery store food.

I would have to research the topic more. But it feels like fast food was comparatively more expensive when I was young and sometime in the late 80s and 90s it started incorporating really cheap, low cost products that the lower income groups really started to eat up.

[Hawktawk]

My buddy Dale just retired as an MCD owner operator . He and his buddy Chuck had 7 stores and I would bet the corporation is one of lamb Weston’s biggest customers . He said that during the pandemic they went curbside and window and they never made more money in their lives . Many of their current practices retain some of that innovation along with things such as kiosks for ordering taking over humans more and more . They haven’t skipped a beat with inflation etc , at least their stores and he anticipates the demand for fast food is more permanent and stable then before .

[RiverDog]

My buddy Dale just retired as an MCD owner operator . He and his buddy Chuck had 7 stores and I would bet the corporation is one of lamb Weston’s biggest customers . He said that during the pandemic they went curbside and window and they never made more money in their lives . Many of their current practices retain some of that innovation along with things such as kiosks for ordering taking over humans more and more . They haven’t skipped a beat with inflation etc , at least their stores and he anticipates the demand for fast food is more permanent and stable then before .

Yep, McDonald's is our biggest customer. They don't have the market share they used to, but they're still the big dog on the block. Although I think it's changed somewhat since I left, we had two plants, Hermiston and American Falls, that produced nothing but McDonald's products.

And you're right about the kiosks and robots. It's being driven by the cost and availability of labor. The cheapest paying jobs are always the easiest to replicate by automation, so the fast food industry will lead the way. I can easily imagine a time in the near future when a McDonald's store will be ran by one operator.

[NorthHawk]

I read an article a number of years back that pointed out that in the last recession or downturn the companies that were most successful were lower priced restaurants and places like dollar stores.
It makes sense as people still want to go out to eat sometimes and they have to live so getting the necessities of life at a lesser cost becomes a life strategy for more people than in good times.

[RiverDog]

I read an article a number of years back that pointed out that in the last recession or downturn the companies that were most successful were lower priced restaurants and places like dollar stores.
It makes sense as people still want to go out to eat sometimes and they have to live so getting the necessities of life at a lesser cost becomes a life strategy for more people than in good times.

Yes, but that is offset to some degree due to the lack of families traveling. We saw times during recessions when the weekday business was still strong, an indication that the effect you mentioned came into play, but that the weekend business had slowed, an indication that people were doing less traveling.

But this post pandemic economy/recession is a true wild card and it's difficult to predict as people still have money and are not concerned about losing their jobs.

[NorthHawk]

I was mostly adding to the idea that LW would benefit by a downturn in the economy as people still want to go out to eat, but more will be downsizing their spending which
means more sales to restaurants like McDonalds and others.

[RiverDog]

I was mostly adding to the idea that LW would benefit by a downturn in the economy as people still want to go out to eat, but more will be downsizing their spending which
means more sales to restaurants like McDonalds and others.

In past economic downturns, any gains in midweek fast food sales, ie people still wanting to eat out but being more conservative in doing so, was offset by a dramatic decline in weekend sales, a reflection of people traveling less.

However, that relationship may not be applicable in today's environment as people still have money and aren't worried about losing their jobs.

[Aseahawkfan]

In past economic downturns, any gains in midweek fast food sales, ie people still wanting to eat out but being more conservative in doing so, was offset by a dramatic decline in weekend sales, a reflection of people traveling less.

However, that relationship may not be applicable in today's environment as people still have money and aren't worried about losing their jobs.

Why did you guys have such a big downturn in the 90s? I mostly remember the 90s as good economic times under Slick Willy and a conservative Congress with massive stock market growth that preceded the bubble that popped in the early 2000s.

[RiverDog]

In past economic downturns, any gains in midweek fast food sales, ie people still wanting to eat out but being more conservative in doing so, was offset by a dramatic decline in weekend sales, a reflection of people traveling less.

However, that relationship may not be applicable in today's environment as people still have money and aren't worried about losing their jobs.

Why did you guys have such a big downturn in the 90s? I mostly remember the 90s as good economic times under Slick Willy and a conservative Congress with massive stock market growth that preceded the bubble that popped in the early 2000s.

That's been a long time ago, but as I remember, the price of oil had a huge run-up after Sadaam Hussein invaded Kuwait in 1990.

The 1990 oil price shock occurred in response to the Iraqi invasion of Kuwait on August 2, 1990,[1] Saddam Hussein's second invasion of a fellow OPEC member. Lasting only nine months, the price spike was less extreme and of shorter duration than the previous oil crises of 1973–1974 and 1979–1980, but the spike still contributed to the recession of the early 1990s in the United States.

https://en.wikipedia.org/wiki/1990_oil_price_shock

As I stated earlier, our industry fluctuates with the price of gas as it flourishes when people travel, suffers when they don't. Or at least it did back then.

[Aseahawkfan]

That's been a long time ago, but as I remember, the price of oil had a huge run-up after Sadaam Hussein invaded Kuwait in 1990.

The 1990 oil price shock occurred in response to the Iraqi invasion of Kuwait on August 2, 1990,[1] Saddam Hussein's second invasion of a fellow OPEC member. Lasting only nine months, the price spike was less extreme and of shorter duration than the previous oil crises of 1973–1974 and 1979–1980, but the spike still contributed to the recession of the early 1990s in the United States.

https://en.wikipedia.org/wiki/1990_oil_price_shock

As I stated earlier, our industry fluctuates with the price of gas as it flourishes when people travel, suffers when they don't. Or at least it did back then.

So very early 90s. That's more understandable. Mid and late 90s was roaring 20s stock market hype times.