Zacks Investment Research | Jun 24, 2019 08:53AM ET
Lamb Weston Holdings, Inc. (NYSE:LW) has inked a deal to acquire one of Australia’s renowned frozen potato processing company — Ready Meals Pty Ltd. The move is in sync with the company’s efforts to expand production capabilities and meet the rising demand for potato snacks. Let’s take a closer look.
Efforts to Boost Production Capacity
The Ready Meals buyout is expected to augment Lamb Weston’s global manufacturing network production capabilities by nearly 70 million pounds. Ready Meals, which sells products under the Harvest Choice brand, has its facility located in Hallam, Victoria. The acquisition is likely to to strengthen Lamb Weston’s presence in Australia.
Post completion of the deal, Lamb Weston will account for 18 processing facilities globally apart from ownership in 8 facilities through joint-venture initiatives. Although the terms of the deal have not been disclosed, it is subject to certain closing conditions.
Markedly, Lamb Weston is undertaking efforts to bolster production capabilities, as demand for snacks and fries are rising worldwide. Earlier, the company completed the expansion of a facility located at Hermiston, OR. The expansion has facilitated the addition of a new processing line for increasing the production of frozen french fries.
Apart from capacity expansion, the company is striving to strengthen commercial networks and bolster portfolio through innovations. It also resorts to limited time offers (LTO) innovations to expand revenue prospects. Further, Lamb Weston is gaining from robust price/mix across most segments.
Rising Costs and Challenges in Europe are Worries
Despite the above-mentioned efforts to strengthen business, there are significant hurdles in Lamb Weston’s path that cannot be ignored. Notably, the company’s SG&A expenses have been rising for a while. For fiscal 2019, management expects SG&A costs to increase due to planned investments to support the upgrade of information systems and enterprise resource planning infrastructure. Additionally, the company expects transportation, input and manufacturing costs to increase in fiscal 2019.
This Zacks Rank #4 (Sell) company is also experiencing uncertainties in Europe. In fact, operations in the region are expected to remain dismal during fiscal 2019 and in the first half of fiscal 2020, thanks to poor potato harvest.
Such downturns have caused the company’s shares to decline around 16% in the past three months compared with the Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.