Lamb Weston Stock Rises, Earnings Provide Calm Amidst Chaos

Key Points

• Lamb Weston stock is one of few stocks in the green after delivering a double beat in its third quarter fiscal year 2025 earnings report.
• The company has replaced all of its lost customers and is showing a stronger operating margin.
• It's too early to tell, but Lamb Weston could be a tariff winner.

On a day when tariff concerns were sending many stocks, particularly technology stocks, in the red, Lamb Weston Holdings Inc. NYSE: LW stood out after an earnings report that beat expectations on the top and bottom lines. LW stock was up more than 7.5% in early trading, which pushed the stock more than 10% higher in the last week.

Revenue of $1.52 billion was 1.8% higher than the $1.49 billion that was expected. And on the bottom line, the news was even better. The company reported earnings per share (EPS) of $1.10, which was 26.6% higher than the consensus estimates of 88 cents per share.

Lamb Weston also maintained its revenue and earnings guidance for the remainder of its 2025 fiscal year, which will end next quarter. The company is projecting $6.4 billion in revenue at the midpoint with EPS guidance of $3.13. That’s in line with the company’s average since 2019.

However, one data point that may explain the bullish reaction to the report was the company’s operating margin. This has been trending lower on a year-over-year basis. But in the recent quarter, the company posted an operating margin of 16.4%, up from 15.4% in the third quarter of its 2024 fiscal year.

A Good News, Bad News Report

First, the good news. In 2024, Lamb Weston lost a significant number of customers as the company transitioned to a new Enterprise Resource Planning (ERP) system. However, in this quarter, the company said it has “fully replaced the combined regional, small, and retail customer volume lost in the prior year” due to the transition.

The company also said that it was close to completing its crop negotiations for the coming fiscal year. The company expects a price decline in the mid-single digits for North American crops that input cost increases would partially offset. International crop prices are projected to remain flat on a year-over-year basis.

Another favorable data point for investors is Lamb Weston’s capital spending, which increased sharply in 2024 to 15.3% of net sales. However, the gain was largely due to the implementation of its ERP system. By the end of fiscal year 2026, the company is forecasting a $450 million reduction in CapEx spending compared to its 2024 fiscal year.

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However, the report contained some bad news. While Lamb Weston is maintaining its outlook for the remainder of its 2025 fiscal year, the softness in restaurant traffic persists.

One of Lamb Weston’s biggest customers is McDonald’s Corp. NYSE: MCD. Lamb Weston’s sales to the fast-food giant have been negatively affected as consumers face the impact of sticky inflation. But it’s interesting to note that MCD stock was also up on the day, representing one of the few positive stocks in the Dow 30.

Lamb Weston Could Be a Tariff Winner

Markets hate uncertainty, and so do corporations. A noticeable disclaimer in Lamb Weston’s earnings report is that its forward guidance didn’t consider the potential impact of tariffs. However, in the case of Lamb Weston, that could mean the actual numbers may come in ahead of guidance.

That’s due to the roughly $1.7 billion of French fries and frozen potato products that Canada exports to the United States. Most of those exports come from McCain Foods, which claims one out of every four fries eaten globally comes from its facilities.

Although Canada was spared from retaliatory tariffs for now, companies like McCain would still likely be subject to a 10% tariff. On the one hand, McCain may shift more of its production to the United States. However, suppliers may shift to a U.S.-based rival like Lamb Weston, which has expanded its capacity since 2020.