Lamb Weston Holdings, Inc. LW is gaining on strategic growth efforts like boosting offerings and expanding capacity. The company has been benefiting from robust demand in the food away-from-home channels. In addition, its efficient price/mix is yielding well. Thanks to such upsides, Lamb Weston’s stock has gained 25.9% in the past three months compared with the industry’s growth of 6.1%.

Let’s delve deeper.

Away-From-Home Demand Solid

Lamb Weston is gaining from strong demand for away-from-home frozen potato products. Such trends contributed to the top line in second-quarter fiscal 2022, wherein net sales amounted to $1,007 million, up 12% year over year. Volume increased 6%, driven by the ongoing recovery in demand for frozen potato products in its restaurant and foodservice channels across North America.

Speaking of segments, volumes rose 4% in the Global unit, driven by solid growth in shipments to restaurant chain customers across the United States. Foodservice volumes increased 22%, driven by the solid demand at small and regional chain restaurants combined with independently owned restaurants. For fiscal 2022, management expects net sales growth to exceed its long-term goal of low to mid-single digits.

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Other Drivers

Lamb Weston’s top line has been benefiting from a robust price/mix, as witnessed in the second quarter of fiscal 2022. In the quarter, price/mix went up 6% on the back of initial benefits from product pricing actions along with better prices charged to customers for product delivery.

For the second half of fiscal 2022, the company expects net sales growth to be mainly driven by price/mix. For the fiscal third quarter, management anticipates the price mix to improve sequentially, owing to benefits from the earlier announced product pricing actions in its core segments.

Lamb Weston’s sturdy balance sheet and capacity to generate cash keep it well-placed to boost production capacity and fuel long-term growth. In July 2021, the company announced the expansion plan of french fry processing capacity at its existing American Falls, ID-based facility, with an envisioned capacity to manufacture more than 350 million pounds of frozen french fries and other potato products annually.

The company earlier highlighted that the construction would be finished by the middle of 2023. In March 2021, the company unveiled plans to build a french fry processing facility in Ulanqab, Inner Mongolia, China. The construction of the facility was anticipated to be concluded in the first half of fiscal 2024.

Lamb Weston’s efforts to boost offerings and expand capacity enable it to effectively meet rising demand conditions for snacks and fries. Apart from this, the company is continuing with investments to boost supply-chain, commercial and information technology operations. In the fiscal second quarter, capital expenditure (including IT expenditure) amounted to $148.1 million. For fiscal 2022, the company expects $450 million cash to be used for capital expenditure (excluding buyouts).