Good day and welcome to the Lamb Weston Fourth Quarter and Fiscal Year 2020 Earnings Call. Today's conference is being recorded. And at this time I'd like to turn the conference over to Mr. Dexter Congbalay, VP Investor Relations of Lamb Weston. Please go ahead sir.

Good morning and thank you for joining us for Lamb Weston's Fourth Quarter -- a second okay my screen just went blank pause Fourth Quarter and Fiscal 2020 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 expected performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's 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. Tom will provide an overview of the near-term demand environment as well as our efforts to manage through the COVID-19 pandemic crisis. Rob will then provide some details on our fourth quarter results, financial liquidity and trends we're seeing so far in the first quarter of fiscal '21. With that let me now turn the call over to Tom.

Thank you, Dexter. Good morning everyone and thank you for joining our call today. Before getting into our performance in the quarter, I want to thank the entire Lamb Weston team for their commitment to support our communities our customers and our consumers during these trying times, while keeping themselves and their colleagues safe. We should be proud of doing our part to help feed people around the world. It's their commitment and spirit of teamwork that makes me so honored to be part of this great company. Now let me turn to the performance. The final months of fiscal 2020 were some of the most challenging in Lamb Weston's history. After starting to realize the impact of government efforts to control the spread of the coronavirus in China on our local operations in February, we saw a more severe effect on our overall business beginning in late March as governments in the U.S. and Europe took actions to try to slow the spread of the virus. These government restrictions on restaurants and other foodservice businesses abruptly and significantly reduced restaurant traffic and the demand for fries. In addition the initial drop in demand was so steep and quick that customers needed to adjust inventory levels which further reduced our shipments. As a result our sales and earnings fell in the fourth quarter. Starting in May, U.S. demand for fries began to recover and that improvement has continued through mid-July. The recovery has been led by quick-service restaurants as consumers leveraged drive-through options. By the end of June, QSR traffic rebounded significantly. As expected, full-service restaurants were affected much more severely than QSRs. They adapted by increasing carryout and delivery options. And starting in late May, consumer traffic began to increase as certain state governments gradually eased restrictions to allow…

Thanks Tom. Good morning, everyone. As Tom noted, our fourth quarter results reflect the pandemic's effect on frozen potato demand, as well as the impact on our cost structure as we manage through the crisis and position ourselves for fiscal 2021. While the quarter was highly challenging, we've seen improvements in recent months from the lows we saw in April. We believe that we're well-positioned to manage through the continuing recovery. Specifically in the quarter net sales declined 16% including the benefit of an additional week of sales versus the prior year. Excluding that benefit sales declined 22%. Sales volume was down 17% or 23% excluding the extra week as frozen potato demand at restaurants and other foodservice outlets fell sharply in the last two months of the quarter, following government imposed restrictions on restaurants and other foodservice operations and stay-at-home orders related to the pandemic. The volume decline also reflects inventory destocking by chain restaurant and foodservice customers in April through mid-May as they adjusted to the abrupt drop in near-term demand. Our weekly shipments towards the end of the quarter more closely mirrored consumer demand trends by channel, but we're still down versus the prior year. Specifically our weekly shipments to large chain restaurants in the U.S. were about 50% of pre-COVID levels from late March through early April then improved to around 85% by the end of May as consumers took advantage of QSR drive-throughs. Our weekly shipments to full-service restaurants and non-commercial outlets such as hotels, schools and universities, sporting venues and workplace cafeterias bottomed at about 20% of pre-COVID levels in mid-April then improved to approximately 70% by the end of May as some states began to ease restrictions on restaurants and bars. In contrast, our retail segment's weekly shipments in April through mid-May spiked…

Thanks, Rob. Let me just quickly sum up by saying, we are managing through this difficult and volatile environment, by prioritizing the health and safety of our employees. And supporting our customers as they deal with uncertainty. We believe that the tough decisions we made and the actions we've taken have us well positioned for fiscal 2021 and beyond. The recovery in demand, these past few months has been encouraging with solid improvements in most of our channels, especially at QSRs. While we expect there will be some bumps on the road to recovery, we'll continue to overcome them as the year progresses. Our long-term view remains the same, and we remain confident in our strategies, our ability to generate top and bottom line growth and create value for all our stakeholders. Thank you for joining us today. And we're now ready to take your questions.

Thank you. [Operator Instructions] We'll take our first question from Andrew Lazar with Barclays. Please go ahead. Your line is open.

Good morning, everybody.

Good morning, Andrew.

Hi, there. Tom you mentioned that some of your at least early discussions around customer contract negotiations and such were encouraging. I know on the last call, you talked about approaching some of these key customers maybe a little bit earlier even in the process than you might have otherwise. Just to kind of get in front of it, hopefully, have some of these not RFP the business and go through this process to try and avoid some of that. I know, there's always – you're somewhat more limited obviously in how specific you can get around some of this. But I was hopeful, if you could provide a little bit more color on what you've seen from that new approach? What you're seeing that's been encouraging? In other words is your sense that, that you wouldn't expect a lot of business shifting, let's say between various competitors? Is that kind of the outcome? And how do you think, if you can a little bit around what has it taken to sort of make that happen right with respect to – or what's the give back sort of been in order to make that happen if that's the case?

Yeah, Andrew I – yeah, I'm not going to get into a lot of specifics. But I will tell you, it's been really encouraging. We've had some early discussions. We closed some negotiations early in the process. And it's a partnership and that's what it's all about with our customers, especially some of the big customers. It's a challenging environment. Everybody recognizes that. And one of the most important things is assured supply. We certainly have our challenges in the network that Rob and I discussed on our prepared remarks in terms of manufacturing disruptions. But the plan was to get ahead of it talk to some of our customers with some of these big contracts coming up for negotiations. And there is some give and takes, but I will tell you how we ended up some of the negotiations. I feel good about where we ended up. And I'm not going to get into specifics. I don't talk about customers. But it's more to come on that down the road. We got several more contract negotiations coming up. But I feel really good, where we ended up with the ones that we've got completed to this point.

And I guess, obviously demand and trying to forecast demand is certainly the key one and that's the hardest one without question. But if I can summarize maybe some of the comments you just made, is it fair to say maybe that your anticipation at least around the contract negotiation piece of all this is one where maybe there's a little bit more visibility than you might have had a couple of months ago and a piece that maybe will be, I don't know for lack of a better word maybe more manageable in the context of all these things such that it's really all about demand and how quickly that comes back and pricing is not necessarily the piece that sort of derails the recovery, if you will?

Yeah. I think Andrew it's – you hit the key to the whole environment we're operating in is demand forecasting. And what's manageable today is different tomorrow, it's different yesterday. But we do have a lens of future demand based on orders in the system. Now, it's narrowed down a lot from what it used to be just because of the uncertainty in the channels. So it's – again, it's ensuring as best we can with the disruptions, we're having in our manufacturing plants making sure we've got taking care of the key customers. Certainly, we're having some challenges with the plant shut down, but the demand signal, we look at a lot of data just like every other company the demand signal is the key that's going to drive the near-term going forward. Certainly, when we have some of these contracts done and behind us that's helpful, but that's not necessarily an indicator on the demand forecast because the historical demand that we would have with these big customers has completely changed. So we're hand-to-mouth right now on what they're seeing in their store and store traffic. As you can imagine with the things that are going on in the environment in the U.S. specifically of some of our bigger markets that are -- have more spikes in cases and more restrictions the signal is mixed. So -- but the encouraging thing to all this is over the past six, eight weeks as Rob alluded to the things we look at, it's hanging in there pretty well across all of our channels. But the whole key to this is demand signal. And we look at a lot of different data. We certainly have a lens on what our forward orders look like. But the outlook period is a lot shorter than what it used to be, but we're monitoring it closely.

Thanks very much.

Thank you. We'll next go to Adam Samuelson with Goldman Sachs. Please go ahead. Q – Adam Samuelson: Hi, guys. Thanks. Good morning, everyone. A – Tom Werner: Good morning, Adam. Q – Adam Samuelson: So I guess maybe digging in continuing on that discussion and thinking about kind of what we can glean from the fiscal fourth quarter from kind of the margin performance and how it works out prospectively from here is the demand environment certainly is less bad than it was in the May quarter as your quarter-to-date commentary alluded to. And I'm just trying to really think about those incremental kind of production costs that you laid out in the press release and how much of that was more onetime? How much of that is more recurring as long as you've got this kind of the COVID issues playing? And maybe finally how would you frame how to think about the decremental gross margins as your volumes are certainly still down year-on-year just over the next the three months to 12 months? A – Rob McNutt: Sure Adam. This is Rob. As I walk through those, I broke it into the $25 million that's utilization-related costs and then the $22 million that's not utilization related costs. And if you look at that $22 million, $14 million of that was related to the 20 or the 2019 crop write-off. And so there may be some tweaking and true-up here in Q1 as we finalize those discussions with the growers. But not likely that that's going to recur in our minds. Transportation, warehousing inefficiencies may have some recurrence of some of that, but hopefully we would -- the steps we've taken to improve and the additional volume pushing through that we're getting should help that as well. And…

Yes. In terms of SG&A we have continued to squeeze hard on the SG&A. Now recognize some of that is an automatic governor as we saw in the fourth quarter as incentive comp adjusted down and then nobody is traveling. So it's easy to control T&E right now. But right now what we've done is, we've got a hiring freeze in place on our SG&A, ex-critical replacement kind of roles. We're not spending a lot in terms of some of the more forward-looking developmental spend. We have suspended further work on Release two of our ERP system. We are finishing up Release one because we're just about done with that and thought it made sense to finish that up. So again we're taking the steps and you saw that in Q4. So we'll continue to maintain a really tight fist on SG&A costs as we go forward, until we can see things start to stabilize where we think that continuing to -- some of those forward-looking investments like the Release two of the ERP and so forth makes sense.

Okay, I really appreciate that color. I will pass it on. Thank you.

Thank you. We'll next go to Rob Dickerson with Jefferies. Please go ahead. Your line is open.

Great. Thank you. So Tom, look just kind of a overarching question in terms of current situation and positioning. Obviously you go back to March everyone's kind of flying blindly right? You had to put in the orders for the -- with the growers for the 2020 harvest. It sounds like not only you, but other larger players in the industry kind of pulled back temporarily on capacity like you're saying, there's some line shifts that were required from foodservice to retail etcetera. But like where you sit now, looking forward for this year versus where you were a couple of months ago, kind of holistically in terms of 2019 inventory rolling off 2020 crop yields you mentioned currently demand obviously is still a question mark. But kind of overall do you feel like -- all things considered, we're actually not in a bad spot. We think that maybe hopefully the worst is behind us. And what we saw in Q4 hopefully right would be the worst. And now we can kind of work our way back because demand has been created, the harvest seems okay, contract lowers, supply orders actually came in decently. And basically our forecasting might actually prove out to be okay and we might actually be in a pretty good spot once we get to the end of the year. I mean that's the hope. So just kind of any overarching comments on kind of state of the industry and where you think you're positioned?

Yes Rob I sit here today we made a lot of decisions in the last 90 days based on a lot of unknowns. And there's -- where we're positioned right now as a company? I feel really comfortable how we're set up for this fiscal year. Now demand is going to be the wildcard, the demand signal. And I'm really encouraged by what's been happening in the last six to eight weeks. I think a lot of the things that we navigated through in April when all this hit, I would do the same thing again. And so, we'll navigate through the balance of this year with the new crop and next year's crop and the demand signal. I feel good about how the company is positioned. We certainly have our challenges that the team and the Lamb Weston employees are working through in our operations. We're continuing to enhance safety protocols for our employees. We got -- we have the entire organization focused on business recovery plans and cost savings. And so you step back and I feel the company is focused. We're going to have bumps in the road. There's no question about it. But the thing -- the big things that we decisioned in the last 90 days, 100% confident that it's the path forward. And now, we just got to operate this business over the next 12 months, it's going to be bumpy. We'll make adjustments as we need to, but we got everybody focused. So I feel good about where the company sits right now.

Okay. Great. Because what I'm hearing, it doesn't sound like -- there was nothing really in the prepared remarks or the press release. It doesn't sound as if you're in a dire enough position such that the plan would be for some form of restructuring or overhead reductions, right? It sounds like you want to hold the line so to speak. So, when demand recovers you're in hopefully a better competitive spot.

Absolutely, 100%. That's right where we're at.

Okay. Super. Thank you.

Thank you. Our next question will come from Tom Palmer with JPMorgan. Please go ahead.

Good morning. I wanted to ask on the utilization rate side. I think I've seen a couple of announcements about facilities or workers being furloughed at some facilities. So, just was wondering one, how much capacity have you taken offline over the past couple of months? And then, from a utilization rate standpoint, where do you guys think you're running today?

The -- we made a decision about 30-ish days ago to temporarily shut down two of our factories just based on manufacturing efficiencies. And we've opened those factories back -- we're in the process of opening those factories back up. And part of the reason for that is, we're -- what we've been talking about on this call is the shutdowns that we've experienced have been a little bit more pronounced than we anticipated. Especially after the first part of June, we had a lot more positive in our plants. So, it's been more disruptive. At the time, we made the right decision to temporarily shut down a couple of factories and we since opened it back up and it's a need to the business as recoveries are improving. And we're -- work in production schedules and things are a little bit more disruptive than we thought. So that was the decision we made. We've reversed the decision. It's the right path going forward and it's just going to help us navigate through the demand improvement as things recover.

Thanks for that. Also, wanted to follow-up on Adam's guidance question. In addition to SG&A in the past, you've given some expectations for items like cost inflation, CapEx and then it gets more specifically within SG&A the ERP spend. So, I appreciate you're not giving full financial guidance, but I wondered if you might give updates on maybe those line items?

Sure. This is Rob. In terms of the CapEx, I think I've mentioned that for the year 2021, our expectation on CapEx right now is about $140 million. We've said in the past that it's really somewhere in the neighborhood of $120 million -- $125 million for maintenance level CapEx. And so, we want to continue to maintain the facilities. We had a couple of projects underway that we want to finish off including the ERP. And so, we'll finish that off. So that brings us to the $140 million expectation for the year. Again, as things open up later in the year assuming that we continue to trend positively in terms of COVID and so forth in demand that may change. But at this point, we're settled on the $140 million. In terms of SG&A costs, again as I spoke to that we'll continue to maintain a pretty tight handle on SG&A. We have the Release one that will go live here in the 1st of September. And so, we're currently incurring some training costs related to that. But that's the only element of SG&A that I would say would be anything that's outside the norm and that's going to be in the sub-$10 million. I mean, it's not a huge amount of money in the grand scheme of the year. Other than that again, we'll keep SG&A pretty tight for the year unless and until we see any light on the horizon.

And then just on the cost inflation piece?

I'm sorry yes, cost inflation continue to see, broadly speaking kind of that low single-digit kind of cost inflation across the system that we've seen in the past year. So don't expect anything dramatically different there.

Thank you.

Thank you. We'll next go to Chris Growe with Stifel. Please go ahead.

Hi, good morning.

Good morning, Chris.

Good morning. Just had two questions for you. The first one would just be in relation to your crop contracts being down 20%, 25% for the coming crop. Does that reflect your view of demand? And really as those expectations can change, as we go through the year there's a lot of volatility right now or – is the idea to contract for less and just be able to buy more in the open market. And if I can ask related to that are there levers in place you have to acquire more potatoes as demand improves? They're going to be there but are you having ability to get those at a reasonable price if in case there is inflation in that spot market?

Yes, Chris, the point in time is our plan all along was to reset our contracting crop volume with the intent as things become more clear that we have the ability to go procure open potatoes and that's the plan and we're executing that plan. I feel confident about where we're positioned from a crop and our ability to procure potatoes with our growers that we partnered with for a long time. So no concern at all on that front. And as the year plays out Chris, we get six to eight months down the road and we start talking about 2021 crop. We can make some adjustments with that crop – early crop going forward, if the demand returns to normalized levels so to speak. So I feel good about how we're positioned. We made a point-in-time decision. There's a lot of – in the industry, there's a lot of different decisions made. But generally, the industry was kind of in the same spot. So I feel good about where we're at. There's open potatoes available.

Okay. Thank you. And then I had a second question for you which was – is it possible you could tell us your capacity level as you exited the quarter? I'm just – I'm wondering also have you – you see – obviously, I heard your answer before you closed a couple of facilities. You're now reopening those for out of need. Have you reduced your workforce? Have you closed any other facilities? And then again kind of where you exit the quarter if you can speak to that?

No we've got all of our factories running with the exception of one of the factories that we temporarily shut down, it's in the stage of start-up. We have all of our employees, especially in the factories still on payroll. And we absolutely have to run all our factories and it's based out of a need of the disruptions we're having with the COVID hits and sanitization. And every positive is different so – or we follow the protocols that we need to follow some factories that have a positive which had a line down. Some of them we have to shut the plant down for a day some – we've had instances where we shut a factory down for a couple of weeks. And so the team is doing a terrific job navigating through all that Chris. The – I'm not going to even speak to utilization levels because it's so variable right now across the network that it's – until this thing stabilizes, it's going to be really difficult to talk about utilization levels in this environment.

Okay. I appreciate. Thank you.

Okay. We'll next go to Bryan Spillane with Bank of America. Please go ahead.

Hey, good morning, everybody and thanks for taking the questions. I got a couple of quick ones for you. And really I guess more focused on 2022, 2023 more so than 2021. So maybe the first one Tom, just if you think about industry capacity in total, I know the investment community we've all focused a lot on the additions that have been made over the last couple of years. But if you were to kind of think about what that could potentially look like in 2022 and 2023, again just talking about North American capacity, is it your sense that it would sort of not change, or is there a potential that maybe some older factories or facilities, get weeded out in this disruption?

It's a great question, Bryan. I think, as I think about the industry, it kind of gets back to demand. And I believe it's going to get back recover. It's just a matter when obviously. And I think, like any industry and everybody is going to reflect on current footprint. And think through strategy on what the footprint should look like in the next three to five years, what modernization looks like in the next three to five years. Certainly, as we're experiencing the disruptions in our manufacturing facilities, we've taken a very close look at efficiencies, and cost to manufacturer, and a lot of things. So I think the whole, the whole industry is going to do that around the globe. And I don't -- I expect that there could be some footprint changes. There's -- as demand recovers to levels in a couple of years that we've experienced, there's going to continually be investment in capacity, at some point down the road. And how that translates into modernization of new plants versus taking older plants out of the system, I anticipate that may accelerate, Bryan to your point.

All right. Thanks for that. And second question, you talked a little bit about -- you've talked on the call today about demand recovery is tied to I guess, normalizing mobility and consumer behavior, right? So all around pandemic but as we think about recession right, and especially as we move in, if there's going to be less stimulus money put in consumers' pockets. Just to the extent that we're in a recession, could you remind us first, what that was like in 2008 and 2009? And more specifically, how aggressive the maybe the behavior was in terms of competitors going after pieces of business? And do you anticipate that that could be sort of a factor, again not so much in this current round of contracts, but as we're looking out into 2022 or 2023, anything that you're seeing that would make you think that it just could become more competitive in that regard?

Yeah. I think, in 2008, 2009, the behavior from the consumer, we really didn't feel it as a company, looking back at the history, because there's a lot of trade down to the QSR space. And the -- at that time, the international market was growing exponentially faster than the overall North America and European market. So, our volumes as a company, wasn't hung in there and actually grew, through that period of time. The next two, three years, Bryan is -- it's really hard to predict. But I think there'll be some of that behavior. And time will tell how it all plays out.

Okay. Thanks. And then, just the last one for me, Tom, has -- given all of the uncertainty that there is around demand at this point, as you're talking to customers contracting with customers, has it changed at all either the duration of the contracts? Like, is it really difficult to do a two-year deal or a 2.5-year deal right now, just because there's so much uncertainty? And/or is there anything different in terms of the mechanisms of the contract? So the contract goes one way if demand is X, but things are different if demand is Y. Just trying to understand if there's anything different in these contracts and the way you're kind of thinking about structuring them now, just given how unusual the environment is. Thanks.

Yeah, Bryan, there hasn't really been any material changes in any of the contract negotiations that we've had at this point.

Okay. Thanks.

Thanks, Bryan.

Thank you. We'll next go to Carla Casella with JPMorgan. Please go ahead.

Hi and two questions. One on the costs that you incurred this quarter for COVID, the unusual costs related to the non-utilization. How much of that should linger into the next quarter or does that really linger until the next growing season is tabulated?

Yes. Carla this is Rob. In terms of those costs, again, I think, that as you look through those, I broke them down into the $25 million related to utilization and the $22 million that was not related to utilization. Of that $22 million, again, a big chunk of that was related to raw write-off related to 2019 crop and settling of those contracts. And so, I would not expect anything material out of that to recur or extend, other than there may be some minor true-ups here that we clean up in Q1, but it's going to be much smaller than what we saw previously. And then, I said, there were some capital write-offs that we had in the quarter that don't anticipate those will recur. And then, transportation warehousing, I said, that expect those to improve versus what we saw in Q4, may still have some, but they'll be better. On the utilization costs, the $25 million of utilization costs, as Tom and I’ve talked through, it's really tough to predict and to forecast what's going to happen, because those are largely driven by a couple of things. One, what's happening on the demand signal. And two, what's happening in terms of employee health, as they show up for work. We can keep them safe at work and keep them healthy at work. But outside of work, as they circulate in the community, they may get sick and so we may have unexpected shutdowns of plants. And so, that's what's driving that $25 million as that utilization that is tied to both of those issues. So that's the one that I would expect will have some recurrence. Hopefully, we're getting better and smarter at managing those costs. But that's the one where there's a risk I think.

Okay. And on the CARES side, did you break out how much was the CARES incentive? And does any of that linger into 1Q or is that all just fourth quarter?

Yes. In Q4 and I don't know that I spoke to it, but it's disclosed either in the release or the K. I think about $9 million of CARES Act relief is what we received in the quarter. And then there is some carryover into Q1. We'll see what new legislation that's being kicked around, what that has in-store and see how we can quantify that going forward.

Okay. And then, just one last one. Can you remind us how much of your business is the schools, universities, hotels and maybe where it was in 2019 versus where you expect to be in 2020?

Yes, we don't break out…

2020 versus 2021?

Sure. We don't break out that level of detail. The bulk of that business is reported through our foodservice business, but -- by our Foodservice segment. But by far the bulk of that Foodservice segment is the restaurants up and down the street, but we've never broken out the specifics on the hotels. But, again, as I mentioned in my prepared remarks, that our demand on that is the same as you'd expect and what you're seeing in that segment and the economy generally.

Okay, great. Thank you.

Thank you.

Thank you. And ladies and gentlemen, this will conclude our time for questions and answers on the call today. I'd like to turn the conference back over to Mr. Dexter Congbalay for any additional or closing remarks.

Thanks everyone for joining us for our Q4 call. If you'd like to set the time to have a discussion, please e-mail me and then we can schedule time either today or for the next couple of days. Thank you very much.

Thank you. And again, that does conclude today's call. We do thank you for your participation. You may now disconnect.