Dive Brief:
- Lamb Weston expects to see some volume headwinds in the current fiscal year due to the Middle East conflict, executives said on an April 1 earnings call.
- The french fry maker expects a decline in international volumes in the second half of the year ending May 31, in part because “the fourth quarter is further pressured by the evolving conflict in the Middle East,” CFO Bernadette Madarieta said.
- The full effect of the conflict remains an unknown, President and CEO Mike Smith said. "I think the impact in the Middle East is ultimately going to depend on the length and severity of the conflict.”
Dive Insight:
The Iran war, launched Feb. 28 by U.S. and Israel military strikes, has caused ripple effects throughout global supply chains that are still unfolding. Air and ocean carriers, for example, have deployed temporary suspensions and other service disruptions for cargo transitioning through the region. Also, disruptions to oil shipments have raised oil prices dramatically.
For Lamb Weston, conflict risks include lower regional volumes and potentially some impact on inventories, Smith said. Another risk is increased volatility in some commodities, such as packaging and fuel.
"We'll come next quarter and talk about what the fiscal '27 outlook looks like and communicate at that point what those risks could be," Smith said.
Since Lamb Weston's earnings call, the U.S., Israel and Iran agreed to a two-week ceasefire on Tuesday.
The company's current estimate of the conflict's impact is reflected in its forecast of a 250- to 300-basis-point decline in adjusted gross margin this quarter compared to the previous quarter, according to Madarieta.
While navigating potential disruption from the Middle East conflict, Lamb Weston is also cutting production amid lower demand for french fries as consumers eat out less and spend less in stores.
The company took a $33 million net pretax charge for the quarter ended Feb. 22 to write off excess raw potatoes and underutilized production facilities in Europe and Latin America, Madarieta said.
As a result of these inventory and production challenges, the company closed its Munro, Argentina, plant and consolidated Latin America production in its new Mar del Plata, Argentina, facility, Smith said. The company also curtailed production on a line in the Netherlands at the beginning of the current quarter.
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