Bernadette Madarieta
Chief Financial Officer at Lamb Weston
Thanks, Tom, and good morning, everyone. I want to start off by thanking the entire Lamb Weston team for the strong start to the year. Our performance speaks for itself and it's a testament to the passion and dedication of our entire Lamb Weston team. We recognize that we're operating in a challenging macro environment, but the strong first quarter performance has allowed us to raise our fiscal 2024 financial targets.
Let's start with reviewing our first quarter results. Compared with the prior year, sales increased $540 million or 48% to about $1.7 billion. About $375 million or 70% of the increase was attributable to the incremental sales from acquisitions, with most coming from our EMEA business. We lapped the Argentina acquisition this quarter, but we'll continue to receive the incremental benefit from the consolidation of the EMEA operations in the second and third quarters. As a reminder, since we began to consolidate EMEA sales beginning in the fourth quarter of fiscal 2023, those results are included in our last year's sales baseline.
Excluding the incremental sales from our acquisitions, net sales grew 15%. Price/mix was up 23% as we benefited from the pricing actions taken in fiscal 2023 in both our North America and International segments to counter input and manufacturing cost inflation. Mix was also favorable as we continued to strategically manage our product and customer portfolio.
In addition, we estimate the price/mix in the quarter benefited by a couple of percentage points from lower-than-expected trade spending associated with pricing actions that we began implementing in the last month of fiscal 2023. This may be largely timing related and as a result, could be a slight headwind as the year progresses.
The trade spend benefit in the quarter, however, was mostly offset by a roughly 2-point headwind related to lower freight charges passed on to customers as transportation costs have come down from the prior year period. As a reminder, our goal is to match freight charge to our customers with our transportation costs so that their effect on our profits is neutral over time.
In line with expectations, overall sales volumes declined 8%. The decline was primarily due to our decisions to exit volume related primarily to four of our lower-priced and lower-margin contracts as part of our revenue growth management initiatives, and to a lesser extent, continued inventory destocking by certain customers in international markets and in select U.S. retail channels also impacted volume. We believe the effect of these destocking actions is largely behind us and should have little impact, if any, on our results going forward.
It's important to note that volume elasticities or the amount of volume lost in response to inflation-based pricing actions have been generally low. We expect our year-over-year volume trends to improve as the year progresses, as we lap the volume we exited and backfill volume with higher-margin business.
Moving on from sales. Gross profit in the quarter, excluding comparability items, increased $213 million to $490 million. Nearly three-quarters of the increase was driven by the cumulative benefit of pricing actions, the timing of trade spending, mix improvement, and supply chain productivity in our legacy Lamb Weston business, which more than offset higher input and manufacturing cost per pound and the impact of lower volumes. The remaining roughly one-quarter of the increase was attributable to incremental earnings from consolidating EMEA.
Including the dilutive impact of the EMEA acquisition, our gross margin percentage, excluding comparability items, increased 480 basis points to 29.4%. While first quarter margins have historically been our lowest margin quarter, we estimate that the timing of trade spending that I mentioned earlier accounted for approximately 200 basis points of the increase, which would put our normalized first quarter gross margin, including acquisitions, approaching 28%.
Input costs continued to increase mid- to high-single digits on a per pound basis. The increases were largely driven by a 20% increase in the contracted price for potatoes in North America, higher prices for open-market potatoes due to poor yields from the 2022 crop, and continued increases in the cost of labor, energy and ingredients for batter coatings. The increase was partially offset by supply chain productivity savings, lower costs for edible oils, and lower freight costs.
SG&A, excluding comparability items, increased $45 million to $160 million. More than half of the increase was from incremental SG&A with the consolidation of EMEA. The remainder was largely driven by higher expenses related to improving our IT and ERP infrastructure and to a lesser extent, higher compensation and benefit expenses, and higher advertising and promotion expenses.
All of this led to adjusted EBITDA increasing 76% to $413 million. Higher sales and gross profit in the base business drove most of the growth, with the remainder attributable to incremental earnings from consolidating EMEA.
Moving to our segments. This is the first quarter that we operated in our two new reporting segments, North America and International.
Beginning with our North America segment, which includes sales to customers in all channels in the U.S., Canada, and Mexico, sales were up 19% in the quarter. Price/mix was up 24%, which was driven by the carryover benefit of pricing actions that took effect in fiscal 2023 across each of our primary sales channels, the timing of trade spending, and favorable mix as we benefit from our revenue growth management initiatives. Lower freight revenue partially offset the increase.
Volume in North America declined 5%. This primarily reflects our decisions to exit volume related primarily to two lower-priced and lower-margin contracts that largely began to impact our sales in the second and third quarters of fiscal 2023. To a lesser extent, inventory destocking by certain customers and retail channels also pressured volumes. We don't anticipate further effects from the retail destocking after the first quarter.
North America segment adjusted EBITDA increased $148 million to $379 million as the carryover benefit of pricing actions, the timing of trade spending, and favorable mix more than offset higher cost per pound and the impact of lower volumes.
Moving to our International segment, which includes sales to customers in all channels outside of North America. Sales grew $360 million or 212% and included $375 million of incremental sales from the EMEA and Argentina acquisitions. Excluding these acquisitions, net sales declined 9%. While price/mix was up 18% driven by the carryover benefit of pricing actions taken in fiscal 2023 as well as favorable mix, lower volume and freight revenue offset the increase.
As expected, volume, excluding acquisitions, declined 27%. The decrease primarily reflects our decisions to exit two very low-priced, low-margin accounts that largely began to impact our international sales volumes in our fiscal fourth quarter of 2023. To a lesser extent, continued inventory destocking also impacted volumes in the quarter. But as I mentioned earlier, we believe the effect of destocking is largely over.
Despite a 27% decline in our International segment volume, segment adjusted EBITDA increased $57 million to $90 million. Incremental earnings from the consolidation of EMEA's financial results as well as favorable price/mix drove most of the increase, more than offsetting the impact of higher cost per pound and lower volumes in our legacy Lamb Weston business.
Moving to our liquidity position and cash flow. We continue to maintain a solid balance sheet with ample liquidity and a low leverage ratio. We ended the quarter with more than $160 million of cash and no borrowings under our $1 billion U.S. revolver. Our net debt was about $3.3 billion, which puts our leverage ratio at 2.3 times.
We generated about $335 million of cash from operations, or about $140 million more than the prior year quarter, largely due to the higher earnings. Capital expenditures were about $305 million, which is up about $180 million from the prior year quarter, primarily due to construction costs as we continue to expand processing capacity in China, Idaho, Argentina and the Netherlands.
During the quarter, we returned more than $140 million of cash to our shareholders, including $41 million in dividends. Most of the cash return was from repurchasing $100 million of shares. That's more than double what we repurchased in all of 2023 as we acted opportunistically based on our stock price performance during our August open trading window. While our share buyback program is targeted to offset annual equity compensation dilution, we will continue to be opportunistic based on other capital allocation needs and the potential for generating [Phonetic] solid returns based on our stock's trading value.
Turning to our updated fiscal 2024 outlook. Based on our strong first quarter performance, we raised our financial targets for the year. While we continue to expect macro operating conditions to remain challenging, the overall current demand and pricing environment remain solid. In addition, as Tom mentioned, we believe the potato crops in our growing regions in North America and Europe will be consistent with pre-pandemic historical averages. And we're generally pleased with how the discussions to renew remaining contracts are progressing in aggregate.
Specifically, we continue to expect strong net sales gains for the year and have increased our annual net sales target to $6.8 billion to $7 billion, which is up from our previous target of $6.7 billion to $6.9 billion. This includes $1.1 billion to $1.2 billion of incremental sales attributable to EMEA during the first three quarters of the year, which is up $100 million from our previous estimate. This represents a 6.5% to 8.5% net sales growth, excluding acquisitions.
For the year, we're targeting price/mix to be up low-double digits, which means that we expect price/mix will slow sequentially from the 23% increase that we delivered in the first quarter as we begin to lap some of our price actions that we began implementing in the second quarter of last year.
While the overall potato category continues to be solid, due to the timing of contract openers, we're targeting our full year volume, excluding acquisitions, to be down mid-single digits compared with the prior year. And we expect year-over-year volume trends will continue to improve as the year progresses as we lap some of the significant low-margin, low product -- profit volumes that we chose to exit in the second half of last year, and as we gradually backfill the exited lower-margin business with more profitable business.
For earnings, we've raised our adjusted EBITDA target by about $90 million to $1.54 billion to $1.62 billion, up from our previous estimate of $1.45 billion to $1.525 billion. Using the midpoint of this updated range implies growth of about 26% or about $330 million versus the prior year. We left our target for SG&A unchanged at $765 million to $775 million. While our first quarter run rate suggests a lower target, we continue to anticipate spending will build as the year progresses.
We reduced our interest expense target by $10 million to $155 million as we expect to partially offset cash interest with more capitalized interest associated with our capacity expansions. Our other financial targets remain the same, including depreciation and amortization expense of approximately $325 million and capital expenditures of $800 million to $900 million.
In summary, we're executing our strategies to deliver strong top and bottom line growth by improving our customer and product portfolio mix, and offsetting input cost inflation through pricing actions and driving productivity savings across our supply chain. Volume elasticities in response to inflation-based pricing actions have been generally low and we expect volume trends to improve as the year progresses.
While we remain cautious about the effect of inflation on the consumer, we feel good about the start of the year and the health of the category, which gives us the confidence to raise our full-year sales and earnings targets.
And with that, let me now turn it back over to Tom for some closing comments.
