Four months since settling into the CFO seat at Lamb Weston, James Gray has outlined new cost pressure risk the US-based French fries maker is facing.
The hot weather in Europe could well put Lamb Weston in a quandary in terms of potential price increases as Gray suggested the potato crop is already being affected by the persistent heatwaves.
While Gray said Lamb Weston is currently covered for its European potato supply, any shortages would likely exacerbate the cost-inflation inputs arising from the Middle East conflict.
Addressing the Bank of America SMID Cap Virtual Conference this week, Gray explained the environment playing out in Europe.
“I would say that if I had to take the total potato crop, it is more challenged in terms of its maturation due to the heat - you’re getting an earlier maturity. Probably you will have less yield coming off of the acreage,” he said.
“Overall, you’re going to see a tightening of the crop and probably a slightly less-than-normal average crop within Europe. That’s what our read is as we look at it. Some of the cost of the potato input has gone up on the spot market. We’re mostly contracted for that, so I think we’re in a pretty solid position as we look forward to the next year.”
Gray outlined that since February, Lamb Weston had seen cost pressures in edible oils, freight and packaging but when it comes to potential price increases it is like a cat-and-mouse game to see what competitors do.
“Our competitors are seeing this, and our customers are also seeing it as well, so it provides a better basis for a conversation with customer procurement teams that says, ‘well, you’re facing this cost pressure, so am I, I have to cover it.’ It sets a stronger base for price increases as we go forward.
“We have talked about the potato crop, so we will see how that firms up and then what does that imply in terms of pricing that we will see in Europe. That is still a bit of an unknown.”
In its fourth-quarter results issued in July, Lamb Weston said net sales rose 6% to $1.68bn, led by a 7% percent increase in sales volume but “offset” by a 3% percent decline in price/mix.
Benefiting from a 53-week year in its 2026 fiscal performance to 31 May, the company said net sales climbed 2% to $6.45bn, with volume again up by 7%, while price/mix fell 6%.
Gray said there are uncertainties from the Middle East conflict on how higher oil prices will feed through into inputs such as polypropylene and soy oil.
“Right now, you have to be agile in the business, and so we’re thinking about, ‘well, what pricing would be needed now as we think about whether or not this input-cost inflation is going to endure?’ Then getting that effective for the back half of this fiscal year.”
Singling out North America, Gray said innovation is a “great way” to counter price pressures and add to growth and margins, particularly in foodservice.
“When your restaurant operators are really competing for traffic, and in particular in the traffic areas we see, I think you can come in with some innovation, whether it is limited time offers, or stuff that expands the franchise value. This is a wonderful category to go get creative and have some fun in,” he said.
The CFO added: “As we go forward, we still have some cost-input inflation and maybe there is some room in a pricing environment as we go forward. I am not saying that is guaranteed, but it is not as tough as it was in say 2024 when Walmart was throwing out mandates for everybody.”
