Dive Brief:
- Lamb Weston executives anticipate facing challenges in volume due to the ongoing conflict in the Middle East for the current fiscal year, as discussed in a recent earnings call on April 1.
- The company foresees a decrease in international volumes in the latter half of the year ending May 31, attributed in part to the impact of the conflict in the Middle East, according to CFO Bernadette Madarieta.
- The full extent of the conflict’s impact remains uncertain, with President and CEO Mike Smith noting that it will depend on the duration and severity of the situation in the Middle East.
Dive Insight:
The Iran conflict, initiated by military actions from the U.S. and Israel on Feb. 28, has triggered repercussions across global supply chains that continue to unfold. Disruptions such as temporary suspensions and service interruptions by air and ocean carriers for cargo passing through the region, as well as soaring oil prices due to disruptions in oil shipments, have been observed.
Lamb Weston faces risks such as reduced regional volumes and potential inventory impacts, along with increased volatility in commodities like packaging and fuel, as highlighted by Smith. The company plans to reassess and communicate the risks for fiscal ’27 in the next quarter.
Following Lamb Weston’s earnings call, a two-week ceasefire was agreed upon by the U.S., Israel, and Iran on Tuesday.
The company’s current projection includes an estimated 250- to 300-basis-point decrease in adjusted gross margin for this quarter compared to the previous one, reflecting the impact of the conflict, according to Madarieta.
Amidst navigating challenges from the Middle East conflict, Lamb Weston is also scaling back production due to reduced demand for french fries linked to decreased consumer spending in stores and restaurants.
To address inventory and production issues, the company incurred a $33 million net pretax charge in the previous quarter to address excess raw potatoes and underutilized facilities in Europe and Latin America, Madarieta explained.
As a response to these challenges, Lamb Weston made strategic decisions such as closing its Munro, Argentina, plant and consolidating production in Mar del Plata, Argentina, while also scaling back production in the Netherlands at the start of the current quarter, Smith shared.