McDonald’s French Fry Supplier Warns Demand Sputtering, Sends Shares Crashing 

A major McDonald’s french fry supplier missed its second-quarter earnings and slashed full-year guidance for the second consecutive time this year as demand for frozen potato products sputtered, sending shares in premarket crashing lower. 

For the quarter that ended Nov. 24, Lamb Weston posted adjusted earnings of 66 cents a share, which missed analyst estimates of $1.02 a share, according to Bloomberg. 

Challenging macroeconomic conditions in the quarter were blamed on higher-than-expected manufacturing costs and sliding fry demand.  

Here’s a snapshot of 2Q earnings (courtesy of Bloomberg): 

Adjusted EPS 66c, estimate $1.02

Adjusted Ebitda $281.9 million, estimate $330.2 million

• North America adjusted Ebitda $266.7 million, estimate $295.2 million

Net sales $1.60 billion, estimate $1.67 billion

• North America net sales $1.07 billion, estimate $1.1 billion
• International net sales $528.8 million, estimate $568.5 million

Volume -6%, estimate -2.76%

• North America volume -5%
• International volume -6%
• Price/mix -2%, estimate -0.91%
• North America price/mix -3%

“Our financial results in the second quarter were below our expectations,” Tom Werner, President and CEO, wrote in a statement, adding, “Higher-than-expected manufacturing costs and softer volumes accounted for the shortfall, while price/mix and operating expenses were broadly in line with our targets for the quarter.”

The dismal quarterly results led the the company to cut its full-year guidance for the second straight quarter:

• Sees adjusted EPS $3.05 to $3.20, saw $4.15 to $4.35, estimate $4.23 (Bloomberg Consensus)
• Sees adjusted Ebitda $1.17 billion to $1.21 billion, saw low end of $1.38 billion to $1.48 billion, estimate $1.36 billion
• Sees net sales $6.35 billion to $6.45 billion, saw $6.6 billion to $6.8 billion, estimate $6.65 billion

Werner’s outlook for next year is complicated, and implies that cash-strapped fast-food customers are merely downsizing their meals in the era of elevated inflation: 

“In terms of the broader operating environment, we expect challenging conditions to persist through the remainder of fiscal 2025 and into fiscal 2026, driven primarily by an accelerating rate of capacity additions and continued near-term softening of global frozen potato demand below historical rates, particularly outside North America, until demand trends improve and capacity expansion normalizes. As a result, we are reducing our fiscal 2025 financial targets.” 

In a separate news release, the French fry maker announced that CEO Werner would be replaced by Michael Smith, the company’s chief operating officer. 

The Wall Street Journal revealed in mid-October that activist investor Jana Partners built a 5% stake in the company and would push for a sale. 

To combat a major slowdown in sales, McDonald’s revamped its meal deal targeting working-class and middle-class customers who could no longer afford soaring Big Mac prices due to the inflation storm sparked by failed ‘Bidenomics.’ The meal deal ignited a value menu war with other major quick-service restaurants. Now, the burger chain is planning a complete overhaul of its value menu in early 2025.

Trouble for the Golden Arches resulted in a crash share price for Lamb Weston, -17% in premarket trading in New York.

Meanwhile, MCD resistance building at $300. 

Great news for Jana Partners—this plunge in prices gives their traders an opportunity to purchase more stock at lower prices.