The decreasing trend in Lamb Weston's share price today.
Stocks of Lamb Weston (LW, 0.66% decrease) – North America's largest potato producer – faced a downturn once more after releasing underwhelming third-quarter results ahead of Thursday's trading, missing estimates, presenting bleak forecasts, and announcing a CEO replacement.
At 11:37 a.m. ET, the share price plummeted by 21.2% due to this information.
Lamb Weston's struggles amplify
Lamb Weston recorded a 8% decline in quarterly revenue, reaching $1.6 billion, which fell short of the projected $1.67 billion consensus estimate. The shortfall was due to persisting weak demand for its frozen potato products.
The situation worsened on the financial front, as manufacturing costs exceeded projections and sales volume remained sluggish. Consequently, adjusted operating income plummeted by 41% to $178 million, while adjusted earnings per share (EPS) dropped by 54% to $0.66, falling below the expected analysts' average of $1.01.
CEO Tom Werner admitted that the results fell below expectations. Meanwhile, COO Michael Smith was announced as Werner's successor, assuming the position on January 5. Werner will continue in an advisory capacity till August 31, 2025.
This leadership shift appeared to be a result of interference from investment activist Jana Partners, which invested in Lamb Weston two months prior and had been advocating for management revamp or the company's acquisition. Jana Partners expressed disappointment with the move, insisting that more drastic changes, or a sale, were necessary.
What's in store for Lamb Weston
Adding to its woes, Lamb Weston presented an unenthusiastic outlook, reducing its full-year revenue estimate by approximately 4.5% (midpoint) from $6.6 billion to $6.8 billion to a new range of $6.35 billion to $6.45 billion.
The EPS forecast was also amended, from a range of $4.15 to $4.35 down to a revised range of $3.05 to $3.20.
Clearly, Lamb Weston faces numerous challenges. Jana Partners' assertion of requiring a substantial overhaul seems to be justifiable. It's expected that Jana Partners will demand more assertive action, with a sale potentially being the most logical solution.
In response to Lamb Weston's dire financial situation, investors may choose to reallocate their money away from the company.
Given Lamb Weston's financial instability and the advocacy for change by investment activist Jana Partners, potential investors might opt for more financially stable companies for their investing endeavors.
