Latest / Best of Business / Stephanie Batchelor: Milford Asset Management Analyst on Lamb Weston's profits dropping

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Stephanie Batchelor: Milford Asset Management Analyst on Lamb Weston's profits dropping · Best of Business

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  Speaker 2: This is the Business ow, this is News Talks Hebb
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  Speaker 2: and I. Welcome to the program our senior analyst from
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  Speaker 2: Milford Asset Management, Stephanie Bachelor. Good evening, Hi there. Now,
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  Speaker 2: you'd think that even in bad times, people would still
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  Speaker 2: be eating chips and there'd still be money in chips,
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  Speaker 2: but apparently there isn't. With one of the world's largest
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  Speaker 2: frozen French fry producers, Lamb Western, and some trouble today,
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  Speaker 2: So tell us about that stuff.
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  Speaker 3: Yeah, that's right. So Lamb Western, which is the largest
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  Speaker 3: French fire producer in the US, they've had a bit
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  Speaker 3: of a rocky year. Shares were already down about thirty
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  Speaker 3: percent this year before they reported financial results, and there
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  Speaker 3: are a lot of investors thinking, you know, this is
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  Speaker 3: starting to look pretty attractive and shares are looking pretty cheap.
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  Speaker 3: But it's a great lesson in that the cheap can
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  Speaker 3: always become cheaper. So shares actually felt further twenty eight
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  Speaker 3: percent on the day of the result, which was the
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  Speaker 3: biggest one they move in the history of the company.
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  Speaker 3: And so shares are now down almost fifty percent this year.
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  Speaker 3: The chips are down, they are they are.
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  Speaker 2: What were the key issues in the result that would
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  Speaker 2: call it a severe price reaction?
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  Speaker 3: Well, there are a few things going on. They've been
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  Speaker 3: losing market share because they did a bit of a
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  Speaker 3: software transition and they also had a voluntary product withdrawal.
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  Speaker 3: But the main issue is soft restaurant traffic. So people
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  Speaker 3: are feeling the pinch from the cost of living crisis,
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  Speaker 3: and with restaurants and fast food companies having raised prices
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  Speaker 3: so much of the last couple of years, it's now
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  Speaker 3: just too expensive to eat out, so people are choosing
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  Speaker 3: to eat at home instead, and that obviously means a
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  Speaker 3: lot fewer French fries are being bought. At the same time,
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  Speaker 3: Land Wisdom has been building new production plants, which isn't
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  Speaker 3: great if the demand isn't there, and now they're actually
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  Speaker 3: having to cut prices to try to win back some
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  Speaker 3: of that market share that they've lost.
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  Speaker 2: Are other producers of French fries or chips also seeing
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  Speaker 2: the same thing?
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  Speaker 3: Yeah, so I mentioned Western is the largest one in
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  Speaker 3: the US. They've got about forty percent market share, and
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  Speaker 3: there are two other large players with about fifty percent
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  Speaker 3: share between them, so it's a pretty cozy sort of oligopoly,
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  Speaker 3: and what lam Western is saying is pretty representative of
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  Speaker 3: the overall industry. But they've said they've seen negative restaurant
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  Speaker 3: traffic trends before, but they've never seen them this prolonged,
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  Speaker 3: and the trends are actually still continuing to decline even
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  Speaker 3: over the last months, so it doesn't look like there
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  Speaker 3: are any green shoots.
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  Speaker 2: And everyone's getting hurt. We reported earlier about the report
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  Speaker 2: from McDonald's, which is that's aligning with what LAMB Western
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  Speaker 2: is saying.
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  Speaker 3: Really yeah, So McDonald's one of lam Weston's largest customers,
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  Speaker 3: and the result was also pretty weak. They actually had
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  Speaker 3: their first global sales decline since twenty twenty, and they
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  Speaker 3: said the consumer's becoming increasingly pressured. They're really looking for value,
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  Speaker 3: particularly in those lower income households, and following a lot
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  Speaker 3: of those price increases, McDonald's just no longer seen as
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  Speaker 3: a value option, so they're trying to combat this. They've
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  Speaker 3: launched a five dollar meal deal in late June, and
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  Speaker 3: management seemed pretty upbeat about the early traction from this,
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  Speaker 3: but they did also kind of hint that there's going
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  Speaker 3: to need to be more value going forward. And despite
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  Speaker 3: the negative result of McDonald's, shares were actually up about
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  Speaker 3: four percent, which shows just how negative investors were going
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  Speaker 3: into the results. So it was weak, but it wasn't
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  Speaker 3: as terrible as they expected. So you know, sometimes the
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  Speaker 3: share price reaction can be quite hard to pick quarter
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  Speaker 3: to quarter.
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  Speaker 2: Thank you so much, Stephanie, Senior analyst from Milford's Asset
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  Speaker 2: Management sefety bachelor. If you go have some chips for dinner.
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  Speaker 3: Thank you.
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