Lamb Weston (LW) Braces for Earnings Decline as Pressure Mounts

Lamb Weston Holdings Inc. (NYSE: LW), a dominant force in the frozen potato products sector, is bracing for a pivotal moment as it prepares to release its fiscal first-quarter 2026 earnings this morning, before the opening bell.

The upcoming earnings release is particularly significant given the backdrop of anticipated revenue decline. Analysts are projecting revenue of $1.62 billion, a decrease of over 2.3% compared to the same period last year.

Furthermore, the consensus target for earnings per share (EPS) is $0.53, which represents a substantial 27% drop from the prior-year quarter. These projections highlight the challenges Lamb Weston faces in maintaining its growth trajectory amidst rising costs and evolving market dynamics.

The company's stock, finds itself at an interesting juncture, navigating a complex landscape of analyst expectations, operational challenges, and activist scrutiny.

Despite these headwinds, the stock's recent performance suggests some market optimism. The 4.56% increase on Friday, coupled with an average analyst price target of $68.20 – indicating a potential upside of approximately 23.5% – paints a picture of potential future growth. However, this optimism must be tempered with a realistic assessment of the company's current struggles.

Lamb Weston's recent financial performance provides further context. In the fourth quarter of fiscal 2025, the company reported net sales of $1.67 billion, a 4% year-over-year increase. However, this growth was partially offset by higher manufacturing costs and softer volumes, leading to a reduction in the company's fiscal 2025 financial targets. The company now expects net sales between $6.35 billion and $6.45 billion, with adjusted EBITDA ranging from $1.17 billion to $1.21 billion.

Adding to the complexity is the presence of activist hedge fund Jana Partners, which has been actively pushing for operational and capital reforms within Lamb Weston, even suggesting a potential sale of the company. A survey among the company's top 50 shareholders revealed widespread dissatisfaction, with a significant portion supporting a full board replacement and an overwhelming majority favoring substantial changes. This level of shareholder unrest underscores the need for decisive action from Lamb Weston's management team.

Analysts have also voiced concerns about potential margin pressures due to anticipated price concessions in customer contracts for 2026. This delicate balance between optimism and caution has undoubtedly influenced Lamb Weston's stock performance, contributing to the volatility observed over the past year.

While the consensus leans towards caution, a contrarian perspective suggests that the market may be underestimating Lamb Weston's resilience. The projected declines in revenue and EPS are undoubtedly concerning, but they might already be priced into the stock. Furthermore, the pressure from Jana Partners, while disruptive, could ultimately force Lamb Weston to implement long-overdue operational improvements, unlocking significant value for shareholders.

The company's strong market position and brand recognition provide a solid foundation for future growth, even in the face of short-term challenges. Moreover, the global demand for processed potatoes remains robust, suggesting that Lamb Weston has ample opportunities to expand its reach and diversify its product offerings. Perhaps the market is too focused on the immediate headwinds and overlooking the company's long-term potential.