A shake-up at one of world's biggest frozen French fry makers

[December 20, 2024]  By MICHELLE CHAPMAN

A major supplier of frozen French fries to global chains like McDonald’s, KFC and Taco Bell, has named a new CEO after posting a surprise loss in the second quarter as consumers pull back on the money they spend on food outside the home.

But struggles at the Lamb Weston, which produces the equivalent of 80 million servings of fries every day worldwide, have been no secret on Wall Street and its shares have tumbled more than 40% this year.

In October the Idaho company announced job cuts and said it would close a plant and cut production as demand sagged. Lamb Weston has more than 10,000 employees worldwide.

One of the company’s biggest investors said in a letter to the company this week that Lamb Weston needed new leadership citing what it saw as major mistakes, including a failure to see an erosion in demand as people cut back on dining out.

On Thursday, the company said that Chief Operating Officer Mike Smith would take over at the start of the new year for outgoing CEO Thomas Werner, who will take on an advisory role during a transition period.

Shares slumped more than 23% on Thursday.

“Mike’s appointment represents the culmination of a thoughtful, years-long succession planning process by our board, and we are confident he is the right leader to guide Lamb Weston forward,” Chairman W.G. Jurgensen said in a statement.

Smith has been with the company since 2007 and was named chief operating officer last year.

On Thursday, investors were caught off guard by a whopping $36 million loss in the fiscal second-quarter. The company last year posted profits of $215 million during the same period. Even stripping out one-time costs, the company missed Wall Street projections for per-share earnings of $1.02 by 36 cents.

Jana Partners, the investor that sent a letter to Lamb Weston on Monday, cited a litany of complaints that included “chronic mis-execution, a bloated expense structure” and poor spending choices.

It also cited what it sees as questionable uses of the corporate jet.

A large order of french fries is shown at a McDonald's on May 25, 2010 in downtown Los Angeles. (AP Photo/Richard Vogel, File)

Elevating the company's chief operating officer is not the fix it was looking for and it blasted the company again Thursday.

“Today’s disastrous financial results and decision to swap its CEO for another long-standing Lamb Weston executive complicit in its widespread operational and strategic debacles is just the latest stick in the eye from a board that has completely failed shareholders," wrote Jana, which said it owns more than 5% of the company’s outstanding shares. "Enough is enough: Lamb Weston requires significant board change or, in its absence, should be sold.”

Yet Lamb Weston is facing a very difficult operating environment after post-pandemic inflation altered consumer behavior in America and everywhere else.

In a conference call Thursday, Lamb Weston said that traffic at hamburger chains fell about 1.5% in the most recent quarter. Major fast food chains have tried to improve foot traffic by offering value meals and Lamb Weston said that that has had a negative impact on the volume of frozen French fry sales.

One of those chains includes McDonald’s, whose well being has an oversized impact on the company.

McDonald’s struggled globally in its most recent quarter. Chinese demand was weak as that nation’s economy slowed. McDonald’s same-store sales fell 1.5% companywide.

McDonald’s launched a $5 value meal in late June as its performance sagged and it extended that offer to December at most of its U.S. stores because it drew in more low-income customers.

Lamb Weston now anticipates 2025 earnings of between $3.05 and $3.20 per share, far below the per-share earnings of $4.21 that Wall Street had been projecting.

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