Bernadette Madarieta
Senior Vice President and Chief Financial Officer at Lamb Weston
Thanks Tom, and good morning everyone. As Tom said, we're pleased with our performance in the quarter and we are confident in our ability to deliver at the high end of our financial target ranges for the year. In the quarter, our sales grew 14% to more than $1.1 billion. Price-mix was up 19%, as we continued to benefit from product and freight pricing actions that we announced last fiscal year and as we began to execute new pricing actions during the fiscal, for the first quarter.
Our sales volumes were down 5%, primarily reflecting the softer restaurant traffic trends in U.S. casual dining and full-service outlets that Tom described earlier, as well as the timing of shipments to large chain restaurant customers. In Retail, while branded product volumes were up, overall Retail segment volumes were down with the ongoing effect of losing certain low margin private label business. Sales volumes in Foodservice and Retail also continued to be affected by our inability to fully serve customer demand as a result of constrained production at our facilities.
Gross profit increased $122 million to $273 million in the quarter. Gross margin expanded nearly 900 basis points versus the prior year quarter and 230 basis points sequentially to more than 24%. Pricing actions and productivity savings drove these improvements, more than offsetting the impact of higher costs on a per pound basis and lower sales volumes. Cost per pound increased high single digits, with inflation again accounting for essentially all of the increase. Higher prices for inputs such as edible oils, ingredients for batter and other coatings, labor and transportation were the primary drivers.
Potato costs were also up as a result of the poor crop that was harvested last fall. We'll continue to realize the financial impact of this crop due most of the second quarter of fiscal 2023, as we sell the final finished goods produced from the crop. And finally, we continued to incur higher costs and operational inefficiencies associated with labor, spare parts, and ingredient shortages and other industry-wide supply chain challenges. Benefits from our portfolio simplification and other cost mitigation efforts, however, offset some of these higher costs.
Moving on from cost of sales, our SG&A increased $25 million, $116 million, largely due to higher compensation and benefits expense and expenses related to improving our IT infrastructure, including designing a new ERP system. Equity method earnings from unconsolidated joint ventures in Europe and the U.S., increased nearly $170 million. More than $140 million of the increase was related to the change in unrealized gains from mark-to-market adjustments, related to changes in natural gas and electricity derivatives, as commodity markets in Europe have experienced significant volatility. Another $15 million at the increase relates to a gain recognized in connection with us acquiring an additional 40% interest in our joint venture in Argentina.
Excluding these comparability items, as well as other mark-to-market adjustments not associated with natural gas and electricity derivatives, equity earnings increased $13 million. This largely reflects improved results in our joint venture in Europe. In addition, in September, our European joint venture withdrew from its joint venture in Russia, after receiving all regulatory approvals. In the prior year quarter earnings from the Russia joint venture were not material. So putting it all together, adjusted EBITDA, including unconsolidated joint ventures nearly doubled to $228 million, while adjusted diluted earnings per share more than tripled to $0.75 per share. Strong sales growth and gross margin expansion, primarily drove the increases.
Moving onto our segments. Sales in our Global segment were up 12% in the quarter. Price-mix was up 14%, reflecting domestic and international pricing actions associated with customer contract renewals, inflation driven price escalators, and higher prices charged for freight, mix was also positive. Overall segment volumes declined 2% as North American volumes fell, primarily due to the timing of shipments to large QSR chain customers, including the effect of lapping a notable limited time product offering in the prior year quarter. Global's product contribution margin which is gross profit less advertising and promotion expenses, nearly doubled to $84 million. Favorable price-mix more than offset the impacts of higher manufacturing and distribution cost per pound.
Sales in our Foodservice segment grew 14%. Price-mix increased 26%, as we continued to drive product and freight pricing actions that we announced throughout fiscal 2022 and earlier in the quarter to counter inflation. Sales volumes decreased 12% as casual dining and full service restaurant traffic softened. While traffic trends progressively softened each month since the war in Ukraine began at the end of February, it began to tick upward in August. Sales volumes were also affected by the timing of incremental losses of certain low margin, non-commercial business, as well as our inability to fully serve demand as a result of constrained production. Foodservices' product contribution margin rose more than 40%, to $138 million, as favorable price more than offset higher manufacturing and distribution cost per pound and the impact of lower volumes.
In our Retail segment, sales increased 28%. Price-mix was up 32%, reflecting pricing actions across our branded and private label portfolios, as well as favorable mix with the sale of more branded products. Volume was down 4%, reflecting incremental losses of certain lower margin private label products. We'll be lapping the loss of our lost private label business in the second quarter. Sales volumes were also tempered by our inability to fully serve customer demand due to the constrained production. Retail's product contribution margin more than tripled to $49 million behind pricing actions and favorable mix. This was partially offset by higher manufacturing and distribution cost per pound.
Moving to our liquidity position and cash flow. We ended the quarter with $485 million of cash and a $1 billion undrawn revolver. While our net debt remained relatively flat at about $2.25 billion, our leverage ratio fell to 2.7 times from 3.1 times at the end of the fiscal 2022, as earnings grew. We generated more than $190 million of cash from operations, which is up about $30 million versus the prior year quarter, largely due to higher earnings.
Capital expenditures were about $120 million, that's up about $40 million as we continue to construct new French fry lines in Idaho and China. In addition, we paid about $42 million to acquire the additional 40% interest in our joint venture in Argentina, we now own 90% of that joint venture. We returned $64 million of cash to our shareholders in the form of dividends and share repurchases and have about $240 million of authorization, remaining under our share repurchase program.
Turning to our fiscal 2023 outlook. Our financial targets for the year remain unchanged, as we continue to build our operating momentum. While the macroeconomic environment remains volatile, we're on track to deliver at the high-end of our sales target of $4.7 billion to $4.8 billion, with price driving the growth. We'll continue to realize the carryover benefit of product pricing actions in our Foodservice and Retail segments, and in our Global segment, we expect to see the benefit of pricing actions, including pricing structures for contract renewals build as the year progresses.
Forecasting volume continues to remain more difficult due to the near-term volatility in restaurant traffic and demand. As we saw in the first quarter, we believe that consumer behavior during inflationary or recessionary times will continue to affect overall demand, as well as our sales channel and product mix with QSRs and retail outlets benefiting at the expense of casual dining and full-service restaurants.
In addition, we expect our sales volumes will be affected by near-term production and throughput constraints, as we continue to face disruptions in the availability of key product inputs and spare parts. Additionally, while labor and access to shipping containers have improved, we continue to see the impact of shortages. We're on track to deliver at the high end of the range of our earnings target, including adjusted net income of $360 million to $410 million, adjusted diluted earnings per share of $2.45 to $2.85, and adjusted EBITDA including unconsolidated joint ventures of $840 million to $910 million. These targets exclude the items impacting comparability that I described earlier.
We expect our earnings increase will be driven primarily by sales growth and gross margin expansion. We continue to expect gross margins during the second half of fiscal '23 that approach our normalized annual rate of 25% to 26%, and we feel good about the four key factors underlying this target.
First, as Tom noted, we believe the potato crops in our primary growing regions will be at the lower end of the historical average range, and that any effect on our operations and financial performance will be manageable. Second, we're pleased with the continued progress in implementing pricing actions to counter cost inflation. Third, we're making steady progress in adding production workers in order to ease labor pressures in our factories. And finally, the availability of domestic rail and trucking assets, as well as access to shipping, containers continues to improve.
While a broad rail strike has likely been averted, we continue to closely monitor the status of discussions with the West Coast Dock Workers' Union and the impact of potential work slowdown or stoppage may have on our exports.
We continue to target SG&A expenses of $475 million to $500 million, which reflects higher compensation and benefits expenses to attract and retain talent, higher spending for our new ERP system and other IT infrastructure upgrades, higher advertising and promotion expenses as we look to return support back to historical levels and overall inflation for third-party services. We continue to expect equity earnings of $25 million to $30 million, excluding items impacting comparability, but also expect increased volatility, given the likelihood of a poor crop in Europe, as well as possible limitations on natural gas usage that may affect our production.
In addition, we believe that the severe inflation outlook for Europe will likely translate into more pressure on restaurant traffic and demand. Our estimates for our other financial targets are unchanged, including capital expenditures of $475 million to $525 million, excluding acquisitions. Interest expense of approximately $115 million, depreciation and amortization expense of about $210 million and an effective tax rate, excluding items impacting comparability, of about 24%.
Now here's Tom for some closing comments.
