Please standby. We are about to begin. Ladies and gentlemen, good day, and welcome to the Lamb Weston First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's First Quarter Fiscal 2026 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. 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 rather read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix to our presentation. Joining me today are Mike Smith, our President and CEO, and Bernadette Madarieta, our Chief Financial Officer. Let me now turn the call over to Mike.

Thank you, Debbie. Good morning, and thank you for joining us today. The Lamb Weston team delivered first quarter results that exceeded our expectations and show commercial momentum in our business. While we are early in our Focus to Win execution, we are energized and excited by the emerging evidence of results coming from the foundation that we began to lay earlier this calendar year. Our goal remains to drive profitable growth and win with customers by focusing on the principles that made Lamb Weston the industry gold standard: category-leading innovation, exceptional products, and customer-centric actions. We are early in the journey, but our North Star is clear. I want to thank our hard-working team globally for their excellent work. Let me provide a few key messages I would like to leave with you today. First, we delivered another quarter of strong volume growth. This is a result of excellent work across our organization, from innovation quality, consistency, and our focus on the customer. We are seeing positive customer momentum as we invest behind strategic differentiators. Second, we are acting with urgency to implement our new strategic plan, Focus to Win, including working to deliver our cost savings program, which is in its early innings but tracking to our plan of achieving at least $250 million of annual run rate savings by fiscal year-end 2028. Third, we have new innovative products coming this fall, and we are winning new business and growing with existing customers as our teams go to market with a more customer-centric Lamb Weston organization. Fourth, in response to sustained volume growth in North America, we are restarting a curtailed line. Lastly, we are acting with urgency to position Lamb Weston for long-term success and shareholder value creation, including by prioritizing the specific markets and products where…

Thank you, Mike, and good morning, everyone. Our teams continue to perform at a high level as we began executing our new strategic plan and driving changes across the organization. In the quarter, we grew volumes, improved our manufacturing cost per pound, and delivered strong cash flow. Starting on Slide 11, first quarter net sales were essentially flat, increasing $5 million, including a $24 million favorable impact from foreign currency translation. On a constant currency basis, net sales declined 1% compared with the prior year. Volume increased 6%, driven by customer wins and retention, led primarily by gains in North America and Asia. In North America, the rate of new customer volumes scaled earlier than we planned. The total volume increase also included lapping an approximately $15 million charge taken in the '5 related to a voluntary product withdrawal. Turning to the industry, restaurant traffic at several customer channels was flat in the quarter, including overall QSR traffic. While some are growing, including QSR chicken, QSR hamburger, however, was down low single digits and declined another percent in August. Restaurant traffic outside the US has been mixed. Traffic in certain markets, including the UK, our largest international market, declined 4%. Our customers continue to lean into value and menu innovation, including limited-time offerings to drive traffic and meet consumer needs. Price mix at constant currency rates was in line with our expectations, declining 7% compared with the prior year. As a reminder, this includes the carryover impact of fiscal 2025 price and trade investments that went into effect in the second quarter of last year, as well as ongoing support of our customers. It also includes unfavorable channel product mix within our segments. Looking at our segments, North America net sales declined 2% compared with the prior year, primarily due…

Thank you, Bernadette. In closing, we are acting with urgency to execute our Focus to Win strategy, including delivering our cost savings program. We have continued to drive strong volume growth and are pleased with the momentum we are seeing with our customers. Our team is focused on improving capital efficiency and increasing cash flows as our growth investments are complete and reducing working capital. We have trend-forward products coming to the market, and the capacity and innovation to partner with our customers. And we are managing our business strategically, deploying resources, and focusing our efforts in the areas of the market where we have the most differentiation, which we are confident will best position us for sustained success. Finally, we've reaffirmed our outlook for fiscal 2026. We'll now be happy to answer your questions.

Thank you. If you would like to ask a question, signal by pressing star 1 on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll go first to Andrew Lazar with Barclays.

Great. Thanks so much. Good morning, Mike and Bernadette.

Morning, Andrew.

Maybe to start, you noted that Lamb Weston has restarted a previously curtailed production line in the US. And I guess more broadly, I'm just curious how this squares with sort of the current supply-demand imbalance for the industry overall that you've talked about the last couple of quarters. And have you heard of any further industry capacity delays or outright cancellations beyond what you shared in the international sphere last quarter?

Yeah. I appreciate it, Andrew. You know, we need to restart this line really to keep up the demand signals that we're seeing on the business, the volume, and the customers that we're bringing on board. Really to maintain the customer fill rates. So, you know, all good signals. You've heard me say, historically, this industry has been pretty rational, and our market intelligence would suggest that not all the new announcements are gonna move forward at their original timing. You heard me talk about in July that, you know, we believe that some of those announced capacities aren't gonna move forward. It's either been delayed, postponed, or even canceled. The pace of new announcements has definitely slowed. I can't think of a new announcement that's been made since we reported earnings back in July. So I think, you know, we are seeing signs that this industry is being rational when it comes to capacity.

That's really helpful. Thanks. And then I know, Bernadette, last quarter, I think you talked about a low to mid-single-digit year-over-year decline in price mix for the first fiscal half of the year. I'm curious if that still holds. And if so, I guess it would mean a not inconsequential sequential improvement in price mix in fiscal 2Q, if I have that right.

Yes. No, thanks, Andrew. Foreign currency is having a little bit larger impact on our results. And in the first half, on a constant currency basis, we're expecting a mid-high single-digit decrease in price and then moderating to low to mid in the back half of the year.

Thanks so much.

Thanks, Andrew.

Thanks, Andrew. We'll go next to Tom Palmer with JPMorgan.

Good morning, and thanks for the question. First, I just wanted to kind of clarify some of the gross margin commentary about more flat quarter over quarter. The items you noted seem to be more related to the international segment, like the rising potato costs and the plant start-up costs? Maybe just in North America, an update there. Are we seeing more of kind of the normal seasonal increase to think about? As we shift from 1Q to 2Q? Or are there kind of items there to think about as well?

Thanks, Tom. As it relates to North America, it is a more seasonal increase. One thing, though, that we do need to consider as it relates to North America is the input cost of inflation. We are gonna see a little bit more in February, but we'll also start seeing some of the benefit related to the lower potato prices come in. But you're absolutely right that much of the change is related to the international segment.

Okay. Thank you. And then I just wanted to clarify on the tariff commentary that it's now included in guidance but was not previously. What is your tariff exposure? And I think previously, you'd kind of discussed it as not being meaningful. Is there any update there?

Yeah. So most of our tariff exposure relates to any import of palm oil or other ingredients. And right now, on an annualized basis, we would expect it to be about $25 million. We primarily bring that in from Indonesia and Malaysia. There is going to be a vote in March, is my understanding, that it could be enacted that the Indonesia tariff rate would go away. But that's yet to be known. So we've gone ahead and we've included the full amount for that palm and other ingredients in our guidance for the remainder of the year.

Great. Thank you.

And once again, ladies and gentlemen, if you'd like to ask a question, signal by pressing star 1. Our next question comes from Peter Galbo with Bank of America.

Hey, guys. Good morning. Thanks for the question.

Good morning, Peter.

Bernadette, understanding kind of some of the nuance on the second quarter gross margin. But I guess if I just look at the first quarter performance, it wouldn't be all that different from history. I think it was a roughly flat gross margin Q on Q versus 4Q, which is kind of what the old Lamb Weston would have been even pre-COVID. So I think that the seasonality maybe follows. So I guess the question is, 2Q aside, should we be thinking about the historical seasonality on the gross margin line returning in the second half? At least as it relates to 3Q and 4Q. That would just be helpful as we kind of model out the rest of the year.

Yeah. That's exactly right, Peter. Based on the strength that we saw in Q1, we do expect gross margin to be flat about flat with Q2. And then similar to historical periods, we expect a seasonal step up in Q3 and then a seasonal decline in Q4.

Okay. Great. And, Mike, I just wanted to touch on something you brought up in the slides. Noting on, I think, expanding the usage of brokers in North America. You know, historically, the strength of Lamb Weston was truly the direct sales force. I think it was a competitive advantage maybe you had that some of your competitors didn't. So I just want to understand the change in philosophy or the change in thinking and expanding out to using a broker network. How that's being, I guess, received internally by the direct Salesforce. I mean, again, it's a nuance, but it seems like a meaningful change to how you've operated versus history. Thanks very much.

Yeah. I appreciate the question, Peter. I think it's really important, and I want to make sure I'm clear on this. We are maintaining that direct sales force. So that, to your point, Peter, that team has been very helpful to this business over the course of the last several years as we moved to that model. We've seen success with it. This is now gonna give them the opportunity to continue to focus on the areas where they've been successful. We are augmenting that direct Salesforce with a broker in some of our underpenetrated channels, some of the areas that we haven't spent time focusing on in the past. The sales team, the leadership team on that side is super supportive and excited about it because it actually allows them to really focus on the areas that they have been focusing on and gives us a chance to look at some potential upside opportunity that we haven't really spent a lot of time on over the last several years.

Awesome. Thanks so much, guys.

Thanks, Peter. We'll go next to Max Gumport with BNP Paribas.

Hey. Thanks for the question. I was hoping you could unpack the contribution of customer wins to driving growth in North America. So first, just if you'd be able to quantify that roughly in point terms in terms of what that drove. And then with these gains really first starting to get called out in '25, is there any reason why that benefit doesn't stick in 2Q and 3Q? And then how would you think about that progressing from there? Thanks very much.

Yeah. You know, the team's working hard to pick up new customers, and as I said before, I think we're driving a whole another level of customer centricity here in our organization. You know, as Bernadette mentioned earlier, we've had some customers that we have converted earlier than expected, meaning that some of those customers started placing orders and shipping with us in Q1 that we didn't expect to necessarily happen until Q2. So you know, that's one reason you're seeing the larger step up in Q1 on volume versus what we expected.

Yeah. And that relates primarily to the North America segment. That's exactly right, Mike. And then as it relates to the international segment, keep in mind that we were lapping the prior year voluntary product withdrawal that we won't see going forward.

Okay. And then just coming back to the 1Q versus 2Q gross margin comments that rise to the NASH, but one other way I wanna just get my head around it would be clearly coming into the year, you expected a return to the normal which would have been a pretty meaningful, you know, few 100 basis points, I believe, step up from 1Q to 2Q. I think it's fair to say 1Q gross margin came in a couple 100 basis points above what you might have expected. And I realize you now expect inflation to accelerate from 1Q to February. Has your view on the absolute gross margin changed? Is that because of the timing of inflation, or is it really just a matter of paying meaningfully better than expected 1Q first margin? Thanks very much.

Yeah. So for the question. For the year, we're expecting to be fairly close to what we had originally expected. We didn't guide on gross margin per se, but you're exactly right that the cadence of the gross margin and the increase and decreases, that the primary change here is really that Q1 came in better than expected, and we're expecting more of a flat quarter over quarter gross margin between 1Q and 2Q.

Okay. Thanks very much. I'll leave it there.

And our next question comes from Matt Smith with Stifel.

Hi, good morning. Thanks for taking my question. Mike, could you talk about the impact of restarting the curtailed line in the second quarter? Should we think of there being higher fixed cost absorption as that line comes on? Or is that a cleaner startup process relative to when you open a new plant? And then how do you think about that line going forward? Do you expect production to be maintained on that line, or have you learned that you can turn these on and turn them on based on different times of the year and when it's most efficient to use that capacity?

Yes. Great question, Matt. Let me just ground everyone and remind everyone. We curtailed more than just one line when we did our curtailment. So this is one of those lines that we're bringing back on. During the course of the time that line was down, we would, you know, kind of bump the kind of what we call it bump start the engines and the pumps and kind of keep things lubed up. And so it's easier to start these lines than starting a new production facility from scratch. Not a lot of cost to bringing up this new line. Fully anticipate that we're gonna continue to run this line. That's what our demand signals are telling us. And again, we have other curtailed lines that we have positioned should we see continued growth and momentum in the business. That we'll be able to action against into the future.

Yeah. And the only thing I'd add to that is so for the North America segment, we'll start to moderate at the end of the second quarter when we start up that line from a fixed factory burden perspective. But we'll see a larger impact internationally with the start-up of Argentina and then the higher factory burden from the longer than expected planned maintenance downtime in Q1.

Thank you, Bernadette. And as a follow-up, could you talk about the phasing of cost savings in fiscal 2026? I think cost savings came in above your expectation in the first quarter, but you still expect to be on track for the $100 million run rate in fiscal '26. Or exiting the year. Are you raising your expected cost savings for the year? Is it just more flowed through in the first quarter than you anticipated? Or maybe it was a larger contribution from the carry-in benefits from last year's restructuring savings? Just a little clarification out there. Thank you.

Sure. I'd be happy to provide some color on that. So you're right. We did drive cost savings a bit faster, which has about two-thirds of the benefit in the back half of the year when we initially announced the plan. There's still many priorities that we need to deliver, and we'll continue to provide updates as the year progresses. But for now, we're on track to deliver the $100 million target that we set for fiscal 2026. And again, about two-thirds of that is expected to affect gross profit, and about a third is expected to affect SG&A.

Thank you. I'll pass it on.

And we'll go next to Scott Marks with Jefferies.

Hey. Good morning, Mike. Bernadette. Thanks so much for taking our questions. First thing I wanna ask about is, you gave some commentary earlier about some of the business wins you've had. You know, expanding some business with QSR customers, expanding in C-stores, and other away-from-home categories. Just wondering if you can speak a bit to what's been the driver of these wins? Has it been more of the price support that you're willing to invest behind it or maybe some other factor helping you kind of gain this business?

Yeah. Appreciate the question. You know, a lot of it has to do with how we're engaging in our customers in a change from how we were in the past. You know, we're spending a lot of time making sure that we're doing the right joint business planning, and that's not just lining up our salespeople to the customer. That's a complete cross-functional approach where our supply chain organization, our marketing organization, and others are spending time with these customers and really understanding what they are looking for in a valued partner, and we're now delivering that. We're seeing customers have a renewed focus on service, quality, and consistency rather than just price when it comes to North America. And I think you're seeing that. When you hear, you know, out or Bernadette mention that we're through 75% of our contracting for this fiscal year with customers. That's at a very high retention rate, which we're excited about. And then, obviously, bringing on some of those new customers is providing some tailwinds for the business.

Understood. And then maybe just on the traffic environment, you made some comments about QSR traffic. I think it was flat overall with some puts and takes across the different subsegments within. Just wondering if you can kind of share just overall backdrop what you're seeing in the US internationally, and what you're hearing from customers as we move through the rest of this, I guess, calendar and fiscal year.

Yeah. You know, QSR traffic was flat in the period. You know, as Bernadette mentioned, burger QSR traffic was down. That was after several months of sequential improvements, albeit still down. Chicken QSR was up, which is a great mix opportunity for us. You know, we're intrigued by some of the offerings that we're seeing from some of our customers in the marketplace in terms of value meals. Excited to see how those are gonna perform into the future. You know, we have great customers. They have really loyal consumers. And, you know, they're looking to drive traffic into their restaurants and in their stores.

Yeah. And, Mike, if I could just add on the international side, you know, QSR traffic being a bit mixed in the UK. I think I mentioned our largest market. It was down 4%. There were some other markets up, though, that were up slightly. France, Germany, Spain, but then there were others that were down. So a little bit mixed there on the international side.

And we'll go next to Robert Moskow with TD Cowen.

Hi. This is Jacob Henry on for Rob. Just one question for me. I'm wondering if you can provide any additional details on the pricing of the contracts you signed this quarter? Just curious how those came in versus expectations. I know you guys are winning a good amount of new business. Curious if you are finding you have to discount maybe more than you expected. Thanks.

Yeah. I appreciate the question. You know, as I said earlier, I mean, we're seeing in North America that customers are having that renewed focus around service quality, consistency, and the innovation that we're providing and all that customer centricity that I talked about earlier. It's not just price. Price in North America has been in line with our expectations. That being said, you know, we have supported customers in this challenging environment. You know, we've finished, like we said, 75% of those contracts have gone through the normal course. Another 25% is kind of the normal kind of process that we go through, and we'll start to see those wrap up through the end of the calendar year. You know, I think we've said in the past, last year, about two-thirds of our agreements came up for renewal. We had about a third of those that came up for renewal this year. I'd say, you know, when you think about the international markets, we continue to see a little bit more competitive dynamic. Some of that's related to new capital. Some of that's related to raw pricing in some of the markets. Some of that's related to just normal competitive dynamics. You know? And in Europe, you know, we talked a little bit about the crop and where our raws headed with those contracts. So again, all as expected. And we continue to, again, meet with our customers and show them a differentiated Lamb Weston when it comes to our customers.

Yeah. And we focused a lot on price, and I think the only other thing I'd add in as it relates to mix is that we are seeing a little bit of a change in mix in some of our channels, particularly in our retail channel with, you know, more focus towards the private label volume versus branded volume.

Our next question comes from Steve Powers with Deutsche Bank.

Hey, great. Good morning. Mike, following up on your comments kind of throughout the call on just the importance of customer service and the efforts that you've all been able to make in terms of the supply chain enabling better customer service delivery on your part. I guess, when you think about the overall scorecard, and I'm focused mostly on North America in this question, but, you know, product quality, order fill rates, just all the different dynamics of customer service. Is that scorecard kind of at this point, universally green in your estimation, or are there areas where you still see room for further improvement that are priorities for the organization?

Yeah. I won't go into detail, Steve, in terms of what the scorecard and what we're tracking, but we do track our customer engagement and some of those key metrics on a regular basis, and we still have opportunities. And I think, you know, that's where my focus has been over the last several months is getting out in front of these customers and better understanding where we have opportunities and how we're gonna address those moving forward. In some ways, we've addressed that through some of the structural changes and changes. In some ways, we've addressed that through innovation, some of the items that we're coming out with. But, again, we're having those conversations. And listen. Never satisfied. We always wanna make sure that we're delivering a higher level of service for our customers, and we're gonna continue to do that.

Okay. Thank you for that. And then, Bernadette, I don't so apologies if I missed this, but just on the plants, the new facility in Argentina, how long do you expect that to take before it is up to target utilization levels? I'm not sure I caught that, and I don't know how the competitive activity you called out in Brazil impacts that. Just your outlook for the ramp-up in that facility. Thank you.

Yeah. And maybe before Bernadette jumps into that one, let me just update the group. You know, we actually have that plant now operational. And we're actively qualifying products for our customers. And transitioning, kind of ramping things up. That does take some time, but it is operational, and much of that capacity will be exported to the Brazilian market in that area.

Okay. Is there a timeline to kind of hit target utilization at this point?

Yeah. It takes time. I mean, you know, if you think about our other lines that we've started up, these aren't we don't fill up the lines on day one. And like I said, it takes some time to condition the lines as we call, shake them down a bit, and bring those new customers on and over. It will take us some time to bring that line up to speed.

Okay. Enough. Thanks, Mike.

And we'll move next to Marc Torrente with Wells Fargo Securities.

Hey, good morning, and thank you for the question. Just first on SG&A, it came in a bit lower than expectation. Part of that was the nonrecurring $7 million and then maybe some timing shift in strategic investments. So how should we think about the underlying run rate of SG&A going forward? And any phasing of net cost savings ahead? Thanks.

Yeah. Thanks, Marc. You know, in terms of SG&A, I think about one-third is what we've shared before of the savings are expected to benefit SG&A in fiscal '26, and that's off a $100 million base. And then you're exactly right. The benefit of cost savings in the first quarter did include the $7 million of one-time benefit that we won't see going forward. It will be affected by our cost savings benefits, but then keep in mind, you know, we've got the incremental costs associated with normalizing our stock compensation and then the $10 million in strategic investments that are timed for the latter half of this fiscal year.

Okay. Got it. And then when new customer wins materialize a bit quicker than anticipated, which pulled forward some of the expected volume growth in the year. Maybe could you talk to visibility and other new customer wins that have yet to start? And ability to sustain volume momentum ahead even if, I guess, traffic across the industry remains muted?

Thanks. Yeah. You know, we're not gonna speak to any future customer wins that are coming up. I think the fact that we restarted the curtailed line in American Falls to make sure that we have the right customer fill rates and support our customers the right way is a great kind of breadcrumb to how we're feeling about the business.

Yeah. And I think it's important to note that while volumes in the first quarter did come in above expectations in North America, that does partly reflect a timing shift in the ramp-up of those new customers that was planned for later periods. So that was planned in our original guidance. It just came a little bit faster than expected.

And we'll move next to William Royer with Bank of America.

Hi. Good morning. I just have two. The first, on the new customer wins, is some of this creating customer-specific products that may not have margins that are as high as your existing customers? I guess, how is the profitability of the new additions?

Yeah. I'm not gonna speak to the profitability on specific customers. Just know that we are picking up new customers. We're doing it the right way and with pricing that makes sense for the P&L moving forward.

Got it. And then just secondarily on the CapEx going forward, $500 million this year. When we look to out years, I think you mentioned $400 million this year of maintenance and $100 million of environmental. Should that be the range that we should be thinking about over the next two or three years subsequently?

Yeah. That's in the general ballpark. You know, I think we previously shared that we've got a five-year plan with the environmental expenditures. Currently planning for about $100 million per year over the next five years. But, again, we're continuing to look for ways that we might have opportunities to extend deadlines or, you know, work on other areas to reduce the cost of that compliance. Got it. But in total, you're correct.

Perfect. Thank you.

Thank you. And ladies and gentlemen, that concludes our Q&A session today. I'll turn the conference back to Debbie Hancock for any additional or closing remarks.

Thank you, Lisa, and I want to thank everyone for joining us today. The replay of the call will be available on our website later this afternoon. Have a great day.

That concludes our call today. Thank you for your participation. You may now disconnect. Have a great day.