Lamb Weston, a major supplier of frozen French fries to global chains like McDonald’s, KFC and Taco Bell, has named a new CEO after posting a surprise loss in the second quarter as consumers pull back on the money they spend on food outside the home.
But struggles at the company have been no secret on Wall Street and its shares have tumbled more than 40% this year.
In October the Idaho company announced job cuts and said it would close a plant and cut production as demand sagged. Lamb Weston has more than 10,000 employees worldwide.
One of the company’s biggest investors said in a letter to the company this week that Lamb Weston needed new leadership citing what it saw as major mistakes, including a failure to see an erosion in demand as people cut back on dining out.
On Thursday, the company said that Chief Operating Officer Mike Smith would take over at the start of the new year for outgoing CEO Thomas Werner, who will take on an advisory role during a transition period.
Shares slumped another 23% Thursday.
“Mike’s appointment represents the culmination of a thoughtful, years-long succession planning process by our board, and we are confident he is the right leader to guide Lamb Weston forward,” Chairman W.G. Jurgensen said in a statement.
Smith has been with the company since 2007 and was named chief operating officer last year.
On Thursday, investors were caught off guard by a whopping $36 million loss in the fiscal second-quarter. The company last year posted profits of $215 million during the same period. Even stripping out one-time costs, the company missed Wall Street projections for per-share earnings of $1.02 by 36 cents.
Janna Partners, the investor that sent a letter to Lamb Weston on Monday, cited a litany of complaints that included “chronic mis-execution, a bloated expense structure” and poor spending choices.
It also cited what it sees as questionable uses of the corporate jet.
“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 (which includes an earnings report so ignominious that it prompted one long-tenured analyst to declare it “one of the worst days for a larger-cap food producer in modern history”), but also over the long-term with total returns in the last five years dramatically trailing the S&P 500,” wrote Janna, which said it owns more than 5% of the company’s outstanding shares.
However, a pullback on restaurant spending by Americans has created a difficult operating environment for Lamb Weston.
In a conference call Thursday, Lamb Weston said that traffic at hamburger chains fell about 1.5% in the most recent quarter. Major fast food chains have tried to improve foot traffic by offering value meals and Lamb Weston said that that has had a negative impact on the volume of frozen French fry sales.
One of those chains includes McDonald’s, whose well being has an oversized impact on the company.
McDonald’s struggled globally in its most recent quarter. Chinese demand was weak as that nation’s economy slowed. McDonald’s same-store sales fell 1.5% companywide.
McDonald’s launched a $5 value meal in late June as its performance sagged and it extended that offer to December at most of its U.S. stores because it drew in more low-income customers.
Lamb Weston now anticipates 2025 earnings of between $3.05 and $3.20 per share, far below the per-share earnings of $4.21 that Wall Street had been projecting.
