Bernadette Madarieta
Senior Vice President and Chief Financial Officer at Lamb Weston
Thanks, Tom, and good morning everyone. I want to start by echoing Tom's comments and thanking our employees for their hard work and continued dedication to drive our solid operating and financial performance during these challenging times. We delivered fourth quarter sales growth of 14% or record $1.15 billion, with all of the growth coming from price mix as we continued to execute our previously announced pricing actions in each of our core business segments to offset cost inflation.
Sales volumes declined 1%, primarily reflecting lower export volume due to limited shipping container availability and disruptions to ocean freight networks. Total North American volume grew this quarter behind strong sales to large chain restaurant customers. While consumer demand in our Foodservice and Retail channels also grew, our sales volumes to those customers fell as we were unable to fully serve this demand as a result of lower production run rates and throughput at our production facilities.
For the year, sales increased 12% to nearly $4.1 billion, a record high with price-mix up 9% and volume up 3%. Gross profit in the quarter increased $56 million and gross margin expanded 230 basis points versus the prior-year quarter to 22% product and freight price increases drove the improvement more than offsetting the impact of higher costs on a per pound basis and lower sales volumes. Cost per pound increased double digits for the fourth straight quarter with inflation accounting for essentially all of the increase.
Higher prices for inputs such as edible oils, ingredients for batter, and other coatings and packaging were the primary drivers. Labor costs were also notably up, reflecting broad competition for production team members. Transportation rates also rose sharply versus the prior year. Transport costs increase as we continue to rely on an unfavorable mix of higher-cost trucking versus rail to meet service obligations for certain customers. And as Tom mentioned, while the cost of some inputs and transportation have come off their highs in recent weeks, they remain elevated relative to the past few years and will continue to pose a headwind to fiscal 2023.
We also continue to incur higher potato costs as a consequence of the poor crop that was harvested last fall. We will continue to realize the financial impact of this poor potato crop through most of the second quarter of fiscal 2023. And finally, we continue to incur higher costs and operational inefficiencies associated with labor, spare parts and ingredient shortages, and other industry-wide supply chain challenges. Increased downtimes associated with scheduled maintenance also reduce production run rates, lowering our fixed cost recovery. Partially offsetting these higher cost per pound were benefits from our portfolio simplification, cost mitigation and other productivity efforts.
Moving on, from cost of sales, our SG&A increased $19 million in the quarter, largely due to higher incentive compensation expense and a $3.5 million contribution to our charitable foundation. Equity method earnings from our unconsolidated joint ventures in Europe, the U.S., and Argentina declined $57 million. This included a $63 million non-cash charge associated with the European joint ventures intent to withdraw from its joint venture that operates a production facility in Russia as a result of the war in Ukraine.
Excluding the impact of this charge as well as mark-to-market adjustments associated with currency and commodity hedging contracts, equity earnings increased $2 million versus the prior year. So putting it all together adjusted EBITDA including unconsolidated joint ventures increased 21%, while adjusted diluted EPS rose 48%. Higher sales and gross margin expansion drove the increases.
Moving to our segments, sales in our Global segment were up 10% in the quarter. Price mix drove the entire increase, reflecting domestic and international pricing actions associated with customer contract renewals, inflation-driven price escalators and higher prices charged for freight. Overall segment volume was flat. We drove solid growth in shipments to large QSR and casual dining chains in North America. However, this growth was offset by more than 10% decline in international shipments, reflecting limited shipping container availability and disruptions to ocean freight networks. While still down versus the prior year, international shipments improved sequentially versus the decline of 20% in the third quarter as more shipping containers were made available.
Global's product contribution margin which is gross profit less advertising and promotion expenses declined 1% to $56 million. Higher manufacturing and distribution cost per pound more than offset the benefit of favorable price mix. Sales in our Foodservice segment grew 21%, price mix increased 24% as we continue to drive product and freight pricing actions that we announced earlier in the year to mitigate cost inflation. Sales volumes decreased 3% as labor and commodity shortages as well as scheduled maintenance downtimes impacted run rates and throughput at our production facilities creating the inability to fully serve customer demand.
We did see sales volume slow each successive month during the quarter as restaurant traffic, especially in casual dining softened as consumers responded to accelerating inflation. Foodservices product contribution margin rose 47% to $142 million as favorable price more than offset higher manufacturing and distribution cost per pound.
In our Retail segment, sales increased 20%, price was up 22%, reflecting product and freight pricing actions across our branded and private label portfolios as well as favorable mix. Volume fell 2%, reflecting incremental losses of certain lower margin private label products. This was partially offset by higher shipments of branded products, although this growth was tempered by our inability to fully serve customer demand due to lower production run rate. Retail's product contribution margin nearly doubled to $42 million behind pricing actions, favorable mix with the sales of more branded products, and a $3 million decline in A&P expenses. 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 $525 million of cash and a $1 billion undrawn revolver. We had net debt of about $2.2 billion which corresponds to a 3.1 times leverage ratio. For the year, we generated about $420 million of cash from operations which is down about $135 million versus the prior year, largely due to higher working capital.
Capital expenditures for the year were about $305 million, that's up about $145 million as we completed the chopped and formed line in Idaho and began construction of our capacity expansion in China. For the year, we returned nearly $290 million of cash to shareholders in the form of dividends and share repurchases. And have just under $275 million of authorization program.
Now turning to our updated fiscal 2023 outlook. As Tom noted, we anticipate the overall operating environment to continue to be challenging with inflation continuing to affect our cost structure as well as consumer demand. Accordingly, we're taking a prudent approach to our fiscal 2023 outlook. We're targeting sales of $4.7 to $4.8 billion, which implies a growth rate of 15% to 17%. We expect that price will be the primary driver of sales growth, as we continue to implement our previously announced pricing actions in our Foodservice and Retail segments and secure price increases in contracts up for renewal with customers in our Global segment.
With respect to volume, forecasting demand has become increasingly difficult. Overall, we expect U.S. demand to remain solid. But will also likely be affected by significant inflation that consumers are facing. In the event of an economic recession, we expect demand for french fries will be resilient, although with little to no growth. That's consistent with what we experienced during the Great Recession from 2008 to 2010. Consumer behavior during inflationary or recessionary times may also have an effect on sales channel and product mix.
QSRs and retail outlets may benefit. But this may be at the expense of casual dining establishments. We've already seen some indications of this in the past few months. In addition, we expect our volume growth will be limited by near-term production and throughput constraints as we continue to face labor shortages, disruptions in the availability of key product inputs and spare parts and limited access to shipping containers for export.
For earnings, we expect net income of $360 to $410 million, diluted EPS of $2.45 to $2.85, and adjusted EBITDA including unconsolidated joint ventures of $840 million to $910 million. Using the midpoint of this EBITDA range implies growth of about 20% or about $150 million versus the prior year. We expect the earnings increase will be driven primarily by sales growth and gross margin expansion.
Favorable price mix and productivity savings should more than offset input, manufacturing, and transportation inflation, as well as the cost inefficiencies in potato crop challenges that pressured our results last year. During the first half of fiscal '23, we expect our gross margin to improve versus the first half of fiscal '22 but will continue to be pressured as compared to our normalized seasonal rates. This reflects the implementation of our pricing actions, lagging inflation, as well as the impact of higher raw potato costs on a per pound basis due to the poor crop that we harvested last fall. We also expect our gross margins will be pressured by ongoing industry wide labor and logistics challenges.
During the second half of fiscal '23, we expect our gross margin will approach our normalized annual rate of 25% to 26% assuming four key factors. First, an average fall 2022 potato crop, as Tom noted, at this time, we believe the crop in our primary growing regions in the Columbia Basin and Idaho will be consistent with historical averages. Second, the continued successful implementation of our pricing actions to offset input and transportation cost inflation. As our recent results have shown, we've been able to successfully increase price across our portfolio. Third, the continued easing of labor pressures that have affected our production run rates and throughput. While factory labor availability remains challenging, we feel good about the actions that we've put in place to attract and retain production workers. And finally, the continued easing of logistics pressures that have constrained our shipments, especially our exports. The availability of domestic rail and trucking assets has improved in the past few months along with access to shipping, containers. However, we are closely monitoring the recent expiration of the West Coast Dockworkers Union contract and what impact, if any may have on our exports.
We're projecting a strong increase in sales and gross profit will be partially offset by higher SG&A expenses we're targeting total SG&A expenses of $475 million to $500 million, which is about $100 million higher than fiscal 2022 using the midpoint of that range. The increase largely reflects higher compensation and benefit costs as we adjust our compensation packages to reflect a very competitive environment to attract and retain talent. Additional headcount, recruiting, training, travel, and meetings expenses as we look to fill open positions to support growth over the long term and continue to emerge from pandemic-related restrictions, higher spending to build and test our new ERP system in addition to other IT infrastructure upgrades, higher A&P expenses predominantly in support of our retail segment, and finally, overall inflation for third-party services.
We expect equity earnings to be $25 million to $30 million which is up from about $16 million in fiscal 2022 after excluding the $27 million of mark-to-market commodity and currency contract gains as well as the impairment charge and about $10 million of earnings from the Russia joint venture. In addition to our operating targets, we expect total interest expense of around $115 million, an effective tax rate of approximately 24%. Total depreciation and amortization expense of approximately $210 million and capital expenditures of $475 million to $525 million, which includes about $285 million for the construction of our capacity expansions in Idaho, and China as well as capital associated with our new ERP system and other IT upgrades.
Finally, as Tom noted, we recently acquired a controlling interest in our joint venture in Argentina for $42 million and will now consolidate their results. We do not expect the joint venture to have a material contribution to either sales or earnings growth this year. So looking at our fiscal 2023 outlook at a high level, we're targeting sales of $4.7 billion to $4.8 billion, largely driven by price mix. And we're targeting adjusted EBITDA including unconsolidated joint ventures of $840 million to $910 million, largely driven by strong sales growth, as well as gross margins that approach a normalized annual run rate of 25% to 26% during the second half of the fiscal year.
Now, here's Tom for some closing comments.