Good day and welcome to the Lamb Weston Third Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Dexter Congbalay, Vice President, Investor Relations of Lamb Weston. Please go ahead, sir.

Good morning and thank you for joining us for Lamb Weston’s third quarter 2018 earnings call. This morning, we issued our earnings press release which is available on our website, lambweston.com. Please note that during our remarks, we will make some forward-looking statements about the company’s performance. These statements are based on how we see things today. Actual results may differ materially due to risks and. Please refer to the cautionary statements and risk factors contained in our filings with the SEC for more details on our forward-looking statements. In addition, some of today’s prepared remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release. With me today are Tom Werner, our President and Chief Executive Officer; and Rob McNutt, our Chief Financial Officer. During this call, Tom will provide an overview of our performance as well as some highlights and key operational updates. Rob will then provide details on our third quarter results, our debt and cash flow and our updated fiscal 2018 outlook. Tom will wrap up with some closing remarks before opening up the call for questions. With that, let me now turn the call over to Tom.

Thank you, Dexter. Good morning, everyone and thank you for joining us today. Our strong quarter of sales, earnings and cash flow growth reflects the benefits of our capital expansion investments, our laser focus on delivering industry leading customer service and new product innovation in the market, and our commitment to operational excellence. Sales grew 12% driven by good balance of higher price mix and volume growth. Adjusted EBITDA, including unconsolidated joint ventures, increased 25% to about $240 million. And through the first 9 months of the year, we generated about $310 million of cash flow from operations, up about $55 million versus the prior year period. Because of this strong performance, we are raising our outlook for fiscal 2018. We now expect our sales growth rate to be at the upper end of our targeted mid single-digit range and adjusted EBITDA, including unconsolidated joint ventures to be $805 million to $810 million. Rob will provide more details on our updated outlook later on the call. Our results this quarter reflect how well our commercial and supply chain teams continued to execute on our strategic and financial objectives. But before I run through some of the highlights and key operational updates, I want to take a moment and thank all the Lamb Weston team members for the completion of our post-spin transition services with our former parent. There was a tremendous amount of heavy lifting all across our company to complete the transition on time and we did it seamlessly while continuing to drive our business results. I cannot emphasize enough how proud I am of the team. Now, moving to our key highlights for the quarter. First, our new 300 million pound French fry line in Richland, Washington is up and running providing us with much needed additional flexibility…

Thanks, Tom. Good morning, everyone. As Tom mentioned, we are pleased with our performance in the quarter. We executed well across the organization and delivered strong top and bottom line growth and generated strong cash flow. Specifically, as compared to third quarter of 2017, sales grew 12% to $863 million. Price mix increased 7%, up from the 4% that we delivered in the first half. This was primarily due to implementation of new pricing structures associated with recently renewed contracts in our Global segment and to a lesser degree in our retail segment. In addition in foodservice, we continued to benefit from pricing and mix improvement actions taken in fiscal 2017 as well as actions taken in the first half of fiscal 2018. Volume increased 5% led by growth in our global and retail segments. Gross profit increased $37 million or up 18% versus prior year. Higher price mix and volume growth drove the increase more than offsetting the impacts of higher transportation and warehousing cost, input cost inflation and higher depreciation expense primarily associated with our new production line in Richland. Our gross margin percentage expanded 130 basis points to more than 28%. SG&A expense, excluding items impacting comparability, increased $16 million to $73 million. Three factors primarily drove the increase. First, incremental labor benefits and infrastructure cost related to operating as a standalone public company; second, higher incentive compensation costs based on our year-to-date operating performance, including the true-up for the higher incentive accrual rate for the first half of the year; and third, increased investments in advertising and promotional support in our retail segment as we continue to expand distribution of Grown in Idaho branded products. As a result, adjusted income from operations in the quarter was up $21 million or 14% to $171 million. Equity method…

Thanks, Rob. We are pleased with our third quarter financial results, our progress against operational goals and our ability to once again raise our sales and EBITDA targets for the year. We build good momentum behind strong execution and targeted investments in capacity and capabilities. As a result, we remained well positioned to serve and grown with our customers, generate solid returns and create value for all our stakeholders over the long-term. I want to thank you for your interest in Lamb Weston. And we are now happy to take your questions.

Yes, sir. Thank you. [Operator Instructions] We first go to Andrew Lazar with Barclays.

Good morning, everybody. Thanks for the question.

Good morning, Andrew.

Just two items if I could. I guess the first one is over the past few years, Lamb Weston certainly come in well ahead of its long-term EBITDA growth algorithm as you mentioned in your prepared remarks in a combination of pricing and the Global demand environment. I guess, as we think forward a bit, are there any items that you would call out even broadly that could dampen this sort of momentum. And I guess what I am getting at is what could be the unlock I guess in allowing Lamb to sort of update the EBITDA growth sort of algorithm given that you have fairly recently updated the long-term top line algorithm a bit? And then I have got a follow-up.

Sure. Andrew, it’s Tom. As I think forward, just Global said everybody we have had several years of no inflation and the capacity demand, supply demand situation in the industry certainly has allowed us some great tailwinds. But going forward, we are going to have some inflation that we haven’t experienced in several years that we are going to have to manage through. We have a great team and we will manage through that. But the last several years, we have been over the centerline of our long-term outlook and to expect that to continue is going to be hard-pressed. So, we have got some things coming at us, the next year, the team is working on it and we will give guidance in the Q4 late July on that front.

Okay, thanks for that. And then you mentioned that you lost some distributor labeled volume in the food spur space which I know is lower margin to begin with, but I am just curious where does that volume go just given how tight the capacity situation is in the industry? I didn’t – I guess I thought that there just weren’t that many options for folks to sort of leave various suppliers and go elsewhere?

Well, think of it this way, Andrew, as we continue to work on our overall portfolio and we are evaluating our customer mix and our SKUs in terms of overall margin profile, we are making choices and we have been making choices for the last 12 to 18 months in terms of volume that we just want to walk away from to pursue other opportunities in the marketplace. It’s really some of the street business, the independence that as we clean up our SKU portfolio, we are making choices to walk away from that low margin business and point debt capacity elsewhere, so that’s the big component of what’s going on in foodservice segment right now.

Okay. Thanks very much.

Next question comes from Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning, everyone. I guess first question just on some of the revenue trends in the quarter, some of the qualitative comments that you gave in the prepared remarks, I think you alluded to bit of a slowdown in some of the more independent foodservice business, if you could just expand on that a little bit? I know, there has been some weather issues in the Northeast this winter that might have impacted the comps, but wondering if you could give any additional color there? And then I have a follow-up.

Yes, there has been some weather impact, but we have seen in the foodservice channel the independence they are slowing down and the benefit of that is or the other side of that coin is in our QSR Global business unit, we are seeing a lot of good traction with our customers mix and how we are aligned with those customers. So, it’s a put to take, but right now, overall, we are seeing a little slowdown in the foodservice segment.

Okay, that’s helpful. And then I guess second question from me is related on the cost trends and I know you talked about an expectation for cost to tick higher, to stay more elevated on the potato side moving forward, but in the quarter itself on the Global side, it looks like unit cost did pickup pretty meaningfully, was there a mix impact there that the processing costs were higher. Just wondering anymore color on cost trends between potato and non-potato kind of what has changed relative to where you were 3, 6 months ago would be helpful?

Yes, Adam. This is Rob. In terms of cost, couple of elements driving the increase there as we have talked about, we are seeing inflation in transportation and warehousing that I think others have seen we have been talking about that for the last several quarters, but it does seem to be accelerating a bit. The other side is we are seeing some other input cost inflation and then recognized and part of this is mix related, the depreciation of that new line in Richland is a little bit heavier weighted into that global business. So, you see a little bit more of that there.

Okay. But just to be clear on the cost side relative to where you would have been in January on earnings, it’s the non-potato inflation, it’s same, worse, just how is that tracked versus the expectation?

It’s really where we expected it to be. Transportation, warehousing is the only thing that really is a little bit faster, but again for us that’s not as big a deal as it might be for others.

Okay, great. That’s all very helpful. I will pass it on. Thanks.

The next question comes from Akshay Jagdale with Jefferies.

Good morning and congratulations on outstanding quarter.

Thanks, Akshay.

Yes. So, I wanted to – Tom, I wanted to ask you a little bit about Global, just this is the first quarter post the contracting right and I mean to say the results were exceptional would be an understatement there, especially on price mix. So my question really is you did this contracting several months ago and since then I would argue that demand has strengthened right especially in the U.S. with the LTO with one of your large customers going as well as it is. So, can you just put into perspective, where you see sort of capacity utilization rates over the next 12 months and maybe the next 24 months? I mean, just it looks like not much is going to change from an industry perspective on utilization rates, because even though some incremental capacity is coming online from you guys, seems like demand is more than making up for it. So, that’s my first question just to get some color commentary from you guys on your expectations for utilization rates over the next 12 months and 24 months?

Akshay, a perspective I will give you is you step back and the industry has been running at high capacity utilization for the past several years. Based on how we are forecasting demand as I stated in my Q2 call between 1.5% and 2.5%, we expect that to continue. And if you think about what’s happening in the market right now, what I just said previously in the QSR space, it’s performing really well, so you are seeing that reflected in the Global business unit. And also we have some limited time offerings in Q3 that really accelerated that growth. So, you put all those things together, we made the announcement on Hermiston, our competitive set, they are going to add some capacity over the next 12 to 18 months, but we expect like I say it in Q2 we are going to run our assets the low end 95% and we got flexibility to support our customer needs going forward plus we have got to have the additional flexibility capacity as Rob noted on his comments to make sure that we are maintaining our assets and we are committed to doing that, but we expect the utilization rates to remain fairly consistent to where they have in the past based on the capacity coming on.

And just to clarify so when you say in over the next 12 to 24 months, right, the next couple of years, you expect them to remain where they have been over the last couple of years, right, I mean, because the historical rates for the industry as you have alluded to our like 95%, but we have been operating over 100% and your price mix tells us that even that might be a bit conservative. So, over the next couple of years, is there any reason to believe that utilization rates aren’t going to remain pretty tight for the industry?

Yes. Akshay, this is Rob. A couple of things. We recognized there has been some capacities come on in Europe and so as that comes on that can be competitive in some of those export markets. And so that allows us to be able to maintain growth in service levels domestically. And as Tom spoke to it and recall prior to the Richland 5 startup, we said we were operating at very high level capacity and so we were limited in our – in the ability to help customers with LTOs. And so now that we have got Richland 5 running and then looking forward to the new Hermiston line coming on, we will be able to maintain – one, maintain the operating assets at the right level from a maintenance perspective, but also really support our customers with those limited time offerings which tend to be pretty good business for them to drive traffic and therefore us. So we anticipate things are going to continue to be relatively tight, but we will manage through that with the balance of export and domestic demand servicing those limited time offerings. And so that’s a calculus that the teams go through on an ongoing basis to get the best margins we can out of the capacity we have got. But we do anticipate overall industry capacity will continue to be relatively tight over the next 12 months to 24 months.

Got it. And just one on the LTOs and more in general about your innovation pipeline, what you have mentioned about the fries for the two gold segments, it seems pretty exciting too, but how do you manage – how are you managing sort of this LTO demand, right or just your innovation pipeline, so now you have some flex capacity so you can actually go out and sell some of this stuff, but given the inherent set of – inherent nature of these products to be on and off menus, I imagine it’s harder to manage, so can you give us some sense of how we should be thinking about that as a contributor to your top line going forward because I mean you are having tremendous success right now with one of your customers and I am assuming we can expect that to continue for every product you launch, right, so can you just give us a high level perspective on contribution from sort of LTOs and new products given that you have some flex capacity now? Thanks.

Akshay we are partnering with our customers and we – in terms of our customer relationships and working with them as a plan their outlook and their monthly calendar and their menu, we are close to it. So these things, the LTOs they are variable obviously, but we have a point of view on when those are going to hit. And we are working with our customers and we have a very rigorous system whereas we have insights for having outlook on what they are thinking in terms of menu and doing different products. We are trying different – some different products that we have on the menu to do LTOs. We are putting all that in our schedule and our outlook and our thinking. But that said, sometimes it just takes some time to get these on the menu, but we have a good outlook based on our system and how we work with our customers on when these LTOs are going to hit.

Thanks a lot.

Next question comes from Matthew Grainger with Morgan Stanley.

Hi, good morning. Thanks for the question. Thanks. Rob, I guess the first question on the freight side, obviously you have given us updated sense of your inflation outlook for the full year and so I think we have a sense of where you stand there, but just from a more qualitative standpoint just hoping you could elaborate a little bit on your supply chain how you have adapted to the increase in freight costs and anything about the structure of your supply chain, maybe it’s the concentration or your use of rail something that would just to help us better understand how you are differentiated from everyone else is feeling this pressure?

Yes. If you think about our business, retail tends to be priced on a delivered basis and that’s a smaller portion of our business maybe than some others might be not necessarily in the private and the food category in general. And then the foodservice and the global business those we tend to be contracted where we can more easily share the trade increases with our with our customer base, also recognize that because the predominant of our production is in Pacific Northwest, we do have forward distribution in in the Midwest and in the East. And a lot of that is done by rail. And so we will ship a lot of that by rail and to forward distribution and then it tends to be a lot of customer pickup in that short haul forward. And so that customer pickup, the customer that obviously is dealing with the freight issues. Our teams constantly are looking at rail versus truck rates to optimize that and so that’s just an ongoing part of the model. But again, we don’t tend to be necessarily as tied to truck maybe as some others and then how we balance the freight cost between ourselves and our customers maybe a little different for waiting with some others in the food business.

Okay, that’s helpful. Thanks. And I guess one other follow-up just on Akshay’s line of questioning in the LTO’s, Tom I think you spoke to the volatility or the unpredictability in the LTOs and that clearly seems to have been maybe one of the factors along with your own optionality in terms of driving positive mix during the quarter, but is there I guess we are thinking about the forward price mix outlook and the strength that you exhibited during the quarter here, I know my question is getting a little long winded here, but I know you see avenues for positive mix going forward, in the short-term was there anything inflated about the mix favorability in Q3 that we should expect to see moderate more significantly over the next three months to six months just shorter term timeframe?

Yes. I think as we kind of commented on earlier, we certainly from a volume perspective our Grown in Idaho but you look at our retail segment, Grown in Idaho and our private label accelerated this quarter. We have got some new customers with Grown in Idaho big customers, so that’s certainly probably – not probably it’s over indexed on where that’s going to grow going forward. And I would say our global business unit in particular as we stated the LTO that’s going on right now was drove sustainable [ph] amount of growth. And that’s – again that’s not continue going forward, but underneath that and the goal of business unit if you look at our customers in that segment again the QSR traffic, the customers in that space continue to grow and are full confident that that will continue in the near-term.

Okay. Thanks. And is it – just one follow-up, is it fair to assume that LTOs are almost always going to be higher margin than normal course business even more premium styles?

Yes. Matt, I am not going to get into the specifics in terms of financial, what happens financially with LTOs, so I will just leave with that.

Okay. Thanks Tom. I appreciate it.

Next question comes from Bryan Spillane with Bank of America.

Hey, good morning everyone.

Good morning Bryan.

Just one question and I guess it’s – it kind of ties back to I think maybe Akshay was asking about utilization rate, but just now that you have got the incremental capacity up and running as we are kind of thinking just out over the next four quarters, how much of that volume is at a net basis is available to actually grow volumes year-over-year or how much of that should we think is being sort of netted out as you were kind of running above 100% capacity utilization and maybe you are going to slowdown a little bit production in some of the existing facilities to do the regular maintenance that type of things, so I guess what I am really trying to drive at is, so we are thinking about over the next four quarters, is it more of a price mix driving revenues versus volume and then really just how much actual volume growth is available to you just given your capacity situation?

Well, a couple of things, Bryan. Certainly, we have got to catch up on a few maintenance things coming up and we – the additional capacity with Richland gives us flexibility to continue to service our customers at the volume levels that we expect. We are going to continue to run our assets within the 95% to 100% range. And the critical thing to remember as we talked about earlier is the category over the last several years and I have stated it before continues to grow at a pretty good rate between 1.5% and 2.5%. And our view is that’s going to continue and which is why we brought the Hermiston line forward. So we have to do something to manage our assets, but we have – we see opportunities in the marketplace in the category that we will continue to run our assets at current levels and that the additional capacity gives us flexibility to flex with our customers as their – we talked about LTOs a lot on the call today, but as we are thinking about new things to drive traffic. So I don’t anticipate us doing anything different than what we have been doing from a capacity utilization standpoint. And I think the industry in general will continue to run at tight levels.

So – and can you remind Richland adds 6% to North American volume just the amount of capacity that it enables you to ex-incremental volume it allows you to generate?

About 300 million pounds of natural base of 5.5 billion, yes.

Okay, alright. Thank you.

Thank you.

Next question comes from Andrew Carter with Stifel.

Thanks. Good morning guys. I just have one here for you, you said that really the only impediment to revisiting kind of your long-term EBITDA growth is kind of starting to see some more input cost inflation you have seen 5% so on non-potato here in the fourth quarter and some on the potato, just wanted to talk kind of circle back to you kind of degree you prep of pricing power you have both to offset this both in terms of the contracts you have in place that you setup last summer, the number of contracts that are coming due to the summer and then some of your smaller customers where you have the ability there to take some pricing?

Andrew, there is a lot of variables in our contracting. So within each segment you have contracts that you have faster mechanism, some are fixed price. In our Foodservice segment, we have list pricing that we can go into the market. So there is a lot of variables. In our Retail segment you have contracted prices that are fixed some are – have faster mechanism, so it’s really a mix bag. What I will tell you is in July when we wrap up our year and give our full year guidance, we will have a clear view of the inflation impact next year and how that adds up in terms of long-term outlook and we will also as we do every year at this time as we are going through contracting and thinking about our pricing architecture for the coming year we will have that point of view for you then as well.

Thanks guys.

Thank you.

Next question comes from Adam Mizrahi with Berenberg Capital Market.

Hi, guys. One question for me, the international export business seems to be called out less and less in your results as we go through this year, can you talk about how that part of your business is performing relative to your expectations at the start of the year and why international seemingly playing less as a whole in overall volume growth versus this time 12 months to 18 months ago? Thank you.

Hey Adam, it’s Dexter, one of the things we called out actually last quarter was we delve [ph] back on some of our international business from mix perspective, some of that was lower margin. We were able to redeploy some of that volume that we were exporting before back into North America which obviously carries a little bit higher margin in that way. So growth in international this quarter actually we were slightly down as a result of walk away for some of those contracts. And one of the other things as in terms of China particularly we are continuing to scale our production in China itself, so that means that we are exporting a little bit less until we get plant fully ramped up.

Great. Very helpful. Thank you.

Our last question comes from Michael Gallo with C.L. King.

Hi, good morning and congratulations on the strong results.

Good morning.

My question is just a bigger picture question obviously and a little bit of nontraditional customer for your product obviously they had an enormously successful launch. I was wondering if you start to see signs, if that’s driving some other perhaps nontraditional large QSR players to start thinking about whether some of your products would be opportunities for their menu? Thanks.

Michael, I will comment it from this standpoint. There is opportunity this is my belief in the nontraditional customers. What’s going on in the market and the success that we are happening right now is a testament to that. We have got some things we are working on in our innovation pipeline and obviously I can’t share for competitive reasons, but that’s an area that I think its huge opportunity. It’s a long runway to get some of those nontraditional customers to entertain potato offerings fry or non-fry, but that’s an area that’s top of mind for me and my team. And we are focused on it. We have got some work going around it, but again, that’s a long runway. But the great news is we have got resources against it and when we can crack that code and get in one of those nontraditional fried channels, it could payoff really big. So, we are working on it. We have got some great ideas and hopefully sooner than later we will crack the code.

Thanks very much. And then just a follow-up just on the retail business for the fourth quarter, I know you have a few moving pieces there between the distribution gains and then also you had that significant private label business yet in Q3. I guess to sort of dimensionalize, obviously it’s not going to be 30% kind of growth that you saw in Q3, but should we expect that to be kind of midway between what you saw kind of Q2 and Q3 or I guess trying to dimensionalize the different pieces? Thanks.

Yes, this is Rob and again recognized the relative comp Q4 last year was stronger. But as I mentioned, we have got a couple of new customers for the Grown in Idaho that starts shipping in Q4. And so we will see the impact of that, but also recognize as I mentioned in my prepared remarks that we had some shift in timing between Q2 and Q3, which was meaningful enough to call out. So, I think you are going to end up somewhere in between there as you mentioned. So, I think that’s a fair way to think about it, but it recognized it’s a wide range right.

Thanks very much.

Thanks Michael.

That does conclude our question-and-answer session for today. I will turn the conference back over to management for closing remarks.

Hi, it’s Dexter. If anybody has some follow-up questions, please probably best to e-mail me and then we can set some time to speak. Other than that, have a good day. Thank you.

Thank you. Ladies and gentlemen that does conclude today’s conference. We thank you for your participation and you may now disconnect.