Jana Partners has upped the ante on Lamb Weston for a change of leadership and/or to pursue a sale of the US-listed French fries business.
As it emerged that Lamb Weston’s US food peer Post Holdings is reportedly interested in acquiring the frozen potato products supplier, the investment manager dispatched a letter to the company’s board today (16 December).
Since taking a 5% interest in Lamb Weston in October for $336m, Jana Partners claims to be one of the manufacturer's largest shareholders. The investor said today it had received no response from management to its call urging the business to launch a “review of strategic alternatives”.
Jana Partners said in its letter it hoped the company’s executive team would take the opportunity at Thursday’s announcement of its second-quarter results to “address our previously expressed view that significant board and leadership change is needed at Lamb Weston and that in its absence the company should pursue a formal review of strategic alternatives, including a sale”.
“We believe Lamb Weston’s board and management have wasted the chance to sustain and grow shareholder value in a high-quality business.
“It is indisputable that Lamb Weston’s track record for shareholders prior to the disclosure of our investment has been poor, not only in a disastrous 2024 … but also over the long term, with total returns in the last five years dramatically trailing the S&P 500 and performing in the bottom quartile when compared to proxy peers.”
Lamb Weston’s shares were up 2.1% at $80.92 in early New York trading today, trimming the year’s decline to 24%. They closed 6.8% higher on Friday when news of Post Holdings’ reported bid surfaced from unnamed sources quoted by Reuters.
Neither Lamb Weston nor Post Holdings had responded to Just Food’s earlier request for comment on that report at the time of writing. This publication has also asked for feedback on the letter from Jana Partners.
Business pressures
Lamb Weston, and its shares, have come under pressure this year amid "softness" in demand in both retail and foodservice, where McDonald’s is the company’s largest customer.
The company has incurred a $71m write-down on potato inventories, along with a host of profit warnings. It has also faced disruption from implementing a new ERP system and has closed its Connell, Washington, facility with the loss of hundreds of jobs.
Jana Partners said in October that Lamb Weston’s shares were “undervalued and represent an attractive investment opportunity”, citing the “litany of self-inflicted missteps that have led to underperformance for shareholders”.
Lamb Weston has been led by president and CEO Tom Werner since November 2016, when the company emerged as a spin-off from what was then ConAgra Foods. He is also a board member, an area where Jana Partners put forward its recommendations for personnel changes in October.
In its letter today, Jana Partners said: “The current board and management have overseen a multi-year period of uncorrelated failures across many major elements of operating the business, in the process damaging the company’s reputation and leading market position.
“This has impaired performance, dissolved confidence among customers, investors and other stakeholders, and caused Lamb Weston to veer off its path as a world-class business.”
Jana Partners also made a passing reference today to Lamb Weston’s competitors, although not naming them specifically. They include the privately-held companies McCain Foods and JR Simplot, and to a lesser degree, JD Irving-owned Cavendish Farms.
“The board has supported management as company leadership has attempted to place primary blame for the company’s challenges on end-market softness – rather than offering a long overdue mea culpa and acknowledging the magnitude of damage inflicted on the business and investors from its litany of self-inflicted missteps.”
It continued: “This contradicts what we believe to be an environment where the company’s primary competitors (all private companies) have enjoyed stronger performance at Lamb Weston’s expense.
“This disconnect has not been lost on the investors and other stakeholders we have spoken with or who took part in a proprietary survey.”
Profits fell in Lamb Weston’s 2024 financial year, with net income and diluted EPS both down 28% at $726m and $4.98, respectively, based on sales of $6.5bn, an increase of 21%.
Announcing its first-quarter fiscal 2025 results in October, Lamb Weston reaffirmed its sales guidance at $6.6bn to $6.8bn.
The outlook for net income, however, was cut to $395m-$445m from $630-705m. Diluted EPS was lowered to $2.70 to $3.15, compared to the July estimate of $4.35 to $4.85.
Jana Partners was asked to comment on the Post Holdings bid today but had not responded at the time of publication. A passing reference was made as the investor said the “status quo is no longer tenable”.
“If the board is unwilling to make the significant changes needed to repair Lamb Weston, then the company should work with its financial advisors to explore a sale and take advantage of strategic interest in the company to achieve the highest possible risk-adjusted return for shareholders.”
