Lamb Weston Holdings, Inc. Aktie

Great. Good morning, everybody. Thanks for joining the call. We're just going to give it another 10 seconds to let audio connect, and hello to everybody on the webcast. Thanks for joining. Great. Again, thanks, everybody. Good morning. Thank you for joining us today. Pete Galbo, I run the U.S. Consumer Staples team here at BofA across food -- packaged food, beverages and household and personal care. We're really excited to be joined today by Jim Gray, the new-ish, holds the column of CFO for Lamb Weston as well as Debbie Hancock from Investor Relations. Thanks, guys, for joining.

We've got about 50 minutes to go through a list of questions. We've got a number of folks on the webcast, a number of folks live on the Zoom. If you would like to ask a question on the Zoom, if you want to use the raise hand function, at any point, I'm happy to call on you. If you'd rather I ask a question on your behalf, feel free to hit me on Bloomberg or Chris Downing on my team, who's also here on Bloomberg, and we'll be happy to ask on your behalf.

But with that, we'll get started. And Jim, I guess just to kick off, you reported 4Q earnings and issued fiscal '27 guidance just a few weeks ago. Maybe before we get into the broader discussion, just any pressing questions or clarifications that you've all had in conversations with investors coming out of the quarter that we should touch on first here.

Well, first, Peter, thanks for having us. We appreciate the opportunity to connect. I think maybe coming out of the Q4 year-end, it was important to understand how maybe solid the performance in North America was and then also really update everyone on how the challenges with the Middle East and like just changes in cost of oil and shipment disruption was impacting our EMEA business as part of international.

Maybe just for modeling purposes, the only thing I would probably say is just remind everybody that fiscal year '26 was 53 weeks. And so then we tried to be pretty diligent in giving you estimates of what '26 would look like if it was restated on a 52-week basis. And then our guidance is from there, right? So as people come to know me at Lamb Weston, I tend to like kind of growth rates and/or margin expansion type of guidance because I think it's more indicative of the underlying drivers of the business. And so our guidance was really shaped on 52-week '26 as a base.

Great. Okay. Cool. I guess, Jim, thinking about the leadership changes at Lamb Weston, there's a new slate of folks heading the company, obviously, yourself, Mike kind of being the constant, but then also the addition of Jan. Just what kind of excites you about the opportunity to come over from Ingredion? As you kind of got under the hood, what are some of the biggest opportunities you've seen thus far?

Yes. I mean I think initially, just outside in, you're attracted to the business because of just the tremendous margin structure that exists across the entire -- the food supply chain, what the consumer enjoys in terms of a French fry product versus what a foodservice operator or a restaurant earns in terms of margin, the simplicity of the product in terms of making it in the backroom of the kitchen. And then honestly, the arbitrage that the French fry processors make and then also the farmers, right? It's not -- it's a relatively rewarding crop to grow. So that is initially, you can kind of look at that and say, "Well, that's pretty exciting."

What's really kind of more here that I've learned as I've been here for the first 4 months once so just really enduring customer relationships. And Lamb really has demonstrated a lot of global leadership with some of the biggest and most challenging customers and shown time and time again an ability to succeed, both in delivering quality, just consistency of service, delivering innovation, and we'll talk a little bit more about those.

I think the second piece is just a really resilient supply chain and a really pretty strong manufacturing cost position, especially in North America. Really have come to believe that given the setup in terms of the Columbia Basin and Idaho where the potatoes grow, the concentration of our manufacturing assets and the way that they've matured over time through really focused CapEx investment to get the utilization right and then the ability to distribute frozen product throughout North America. Those 3 things come together, and they really, really do lend to themselves to a strong cost position.

And then maybe the piece that's also interesting is that I think there's some real breathing space around growth. Whether it's innovation in existing customers, Mike Smith has talked a lot about, like, there's a whole bunch of restaurants that actually don't have fryers and don't have refrigeration. And yet there's like some really interesting things that we can do in innovation when we think about like air fryer penetration in households. And so how can we think about the product? You obviously always have to deliver food safe with some type of kill step in there, but the breathing space around growth is pretty cool, whether that's -- and I'm talking in North America, but also obviously, internationally, and we're in the midst of that, too. So those have been the 3, maybe more positive surprises that after getting your feet wet a little bit that I have come to know about Lamb.

And maybe, Jim, just to expand on that, like on the challenges side, has there been anything that's kind of caught you, "Hey, we have to do more work here" or "I need more time as I -- again, as I kind of dig in and see if there's, potentially, opportunity"?

Well, I mean, I think the challenge is that some of the folks on the call know and that there's constant between you have a product that Mother Nature gives you every year, and you're going to have variability in that. And so how can you reduce that variability? How can you mitigate some of that volatility to really get towards more of a consistent profit stream that you -- all of the people attending here love and kind of want to come and predict. But I think that takes real agility. It takes some building, some competencies across the management team and how we do stuff and how we look at the business. And so that's always going to be ongoing whether you're in any type of food product that whether it's dairy, ag, animal protein, et cetera.

I think the other piece here that then is maybe -- I think it was kind of a perceived challenge. And I think it comes away as a negative sometimes, and it's way overblown, but is like we're constantly looking at SAP and our different systems and making sure that we're getting the most out of our applications and like how are we using AI within those systems in order to just see our market space better, make the more informed decisions and reduce costs as we go forward. And I think Lamb has a better toolkit than they're given credit for. But we got to continue to work that.

Okay. Great. I think the word of the day back on earnings -- I don't have the exact count, but I was told that Mike used the word "inflection point" -- or the word "inflection point," probably 7 or 8 times in his script. So we've gotten a lot of questions on that. And I guess just what are the 2 or 3 kind of financial metrics you'd point people to as the clearest evidence that the inflection is real and durable as you kind of enter '27 rather than just kind of a favorable easy comparison type year?

Yes. Well, having, I think, time to reflect on that and really -- let's sort of put ourselves in what has been the situation with a lot of food companies. You come out of COVID, you had this amazing consumer demand bounce back '21, '22, supply chains tightened up in a lot of places. There was a lot of demand. And it wasn't just in the United States, it was really globally, right? And it really taxed. And so honestly, I think one of the ways that companies that supply food products had to rationalize was like through price. And so you did see a lot of price increase in '23, '24. And I think that we've come back off of that. I think that the grocery basket got expensive for consumers. That's often a reference point.

The cost of dining out really jumped up. You had both labor costs as well as food costs. You had some really tough pressure on animal protein, and its cost in the center of the plate. And so that obviously -- I think that softens demand. And so in a soft demand environment in '25 and part of '26, you've seen this whole like, "Hey, people wrestle with price." I point to that and I look at our fiscal '26 and we now break out on our top line price/mix, we had almost $400 million of price/mix pressure. And if you actually look at North America's EBITDA, it was -- I mean, it was solid.

I mean -- and so to be able to endure that type of price change, be able to get and continue to win some volume with customers, but also manage your costs such that your margins are still healthy, that's probably one of the most challenging conditions that a food company can face. And I would say Lamb endured that quite well. And so yes, I think there's actually support when Mike says, "Hey, there's an inflection point." 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'm not saying that's guaranteed, but it's not as tough as it was in, say, '24 when Walmart was throwing out mandates for everybody. I think that there may be -- it's a really great starting point to be in. So -- and then on top of that now, yes, we've got some international EMEA-specific issues, but I think they're -- I'm hoping they're temporal, and we can work through them, and we'll just be more kind of accountable and transparent in terms of what the impact has been. But it shouldn't persist in terms of where we're at with Iran and the U.S. and Israel.

Great. Okay. Thanks for that. Before we get into some of the nitty-gritty, I think, on the model, Jim, maybe we can step back and talk a little bit more about capacity, first in North America and then internationally. It seems like the capacity utilization story in North America has really improved dramatically, call it, from the lows of calendar '24, the fall/winter. Just kind of remind us where we stand today from a capacity utilization standpoint in North America. And just also what's changed from a competitive dynamic? You've had some other industry participants that have pushed out capacity, maybe mothballed some capacity, but just kind of where you see the health of capacity, not only for Lamb Weston, but kind of for the industry in North America?

Yes. I think maybe just to start on an industry comment, right, would be is that whenever you're going to see the cost of the input is either flat or slightly down and some of the pricing into the foodservice industry is going to reflect that, you're going to stimulate demand. I still believe there's some elasticity here because of the margin that restaurant operators earn, right? So like why wouldn't you be thinking about like, "Well, maybe I'll have an in-and-out offer on a French fry. Maybe I can actually -- that's a way to generate some excitement with my consumer, and I'm going to make some great margin on it, and I like the pricing of the product coming in." And so I'm not -- I reflect a little bit like maybe some of that's the demand sensitivity that exists, at least for our category.

Utilization right now for us, we're in that kind of very high 80s, low 90s. We did close a facility in Connell, and we've kind of balanced our demand and our utilization there. So I think that's -- we still have some room to go and would like to be able to kind of absorb a bit more demand. But that's a pretty healthy place for us to be. And then on industry, I think the question that everybody had out there was just looking at like a number of different expansions or new capacity coming in. And I don't know if necessarily the return is there on new capital. And really, what's happened is, I think, post-2025 impact on immigration and maybe the infrastructure demand in construction for data centers, the cost of building new is really inflated.

And I've seen that maybe just in the last 2 years. I mean, I'm a stickler over my capital investment budget, and we really, really do pretty aggressive bids. But either in my prior experience or here, I'm still seeing capital infrastructure projects, particularly in the U.S., have gone up quite a bit in cost. And so that may always give pause to a CFO when they're looking at what's the ROI, what's my payback, how quickly? So you need to have some better industry economics to afford the cash flow generation to get you the return on that investment.

Okay. Okay. Thanks for that, Jim. And maybe same question kind of goes for international, right, which has been a bit more challenged. You had the Kruiningen facility come online in the Netherlands. You had another facility whose name I am not even going to begin to try and pronounce.

BHV. We'll just -- we'll abbreviate it for you.

BHV is a much easier pronunciation. So maybe you can talk a little bit about the European dynamic from a capacity standpoint. And then obviously, in Asia, that's probably been the sticking point for a lot of folks, particularly in China and India, some of, I think, the local players have ramped capacity. So if you can touch on kind of those -- international is a big geographic segment, but just kind of the different moving parts within it?

Yes, yes. I think maybe -- so for folks who know and maybe some who don't, right, so a lot of the capacity for frozen French fries was built in Europe. The U.K. has its own -- kind of its own market, but Europe out of the Netherlands, Germany and then some of the other growing regions have a handful of players and a lot of capacity. And typically, that potato crop has been attractive to the farmer to grow. And that capacity has served maybe, I don't know, 70%. 70% of that capacity was going towards Europe type of demand. And so then Europe is traditionally exporting and exporting and whether it was into the Middle East or Southeast Asia, potentially into South America, sometimes into the U.S.

And then what we've -- the kind of the tectonic shift as we've seen is more potatoes growing in northern parts of China as well as some northern parts of India, Nepal, that area. And we've seen now frozen fry capacity come online, some from European players, some from us and then also in some independents. And therefore, then the production and the shipping has gone not just China for China, which is still a very healthy, robust market for French fries at least, but also maybe China for rest of Asia or Northern Asia, Southeast Asia, India for Southeast Asia, India for the Middle East, et cetera. And so where does that rebalance?

So some of that rebalancing is going to happen, I think, in Europe. I can't necessarily speak for competitors. What we've done is we've elected to close one of our plants, Broekhuizenvorst. And by doing so, I think there was 2 keys for us. One is, could we move our entire book of customer business and service it with our 3 other facilities and do that successfully? And then, can we then have the fixed costs avoided when we move into those facilities? And so that's underway. Pretty confident that, that move is going to work. And so then that allows us to just kind of rightsize our cost structure and our fixed cost capacity with the type of demand that we're seeing that we used to service -- or still service within Europe as well as what we export from Europe into other parts of the world.

And so that's -- I mean, that's our game plan. And again, I think what we're sort of seeing is a bit of a -- maybe like a pause, just like looking at demand and saying, "Hey, is the demand there?" I would say that the demand in China from multinationals is still pretty strong. That's still -- clearly, that type of franchise, that type of McDonald's franchise and Yum! of the world really works as you have that urbanization continuing within China. And it works as a theme, it works in some other countries as well. And so what we find is that how we would like to compete in those parts of the world is really through innovation. That's where I think that it's value-add for our customers. It's value creating for us. And so that tends to be a good synergy.

Great. Well, A-plus pronunciation, Jim, on Broekhuizenvorst because, again, I would have definitely butchered that, so thank you. Jim, a question that came in maybe on the back of that and what you mentioned about where kind of the shifts happen. We all know like French fries are, at the end of the day, a global market. And so I think there's a bit of question, just the increased, I think, international competition, particularly in Asia, that historically has been a pretty big export destination for a lot of actually the North American capacity, right?

If I think about Lamb's export business out of the Pacific Northwest going into Japan, going into Korea. And so I think there's a bit of a question of does local competition there from China, from India back up capacity back into the U.S.? And then do we get into a mismatch again on capacity here because you've effectively repatriated a lot of the capacity? So maybe you can just touch on like what's the compound effect of what it could mean for North America exports?

Yes. I mean the premise of the question is that it's kind of a global market for French fries. Maybe just to add a couple of nuances to that. So one, not all potatoes are created equal. So there are certain species that grow in the Columbia River Basin in Idaho, where you get more of a white flesh potato, that when fried, has a lighter golden color to it, that is a spec that some multinational customers really demand, versus more of a yellow flesh potato, which grows primarily in Europe. And then there's a kind of a frozen supply chain, which, at the end of the day, can get quite expensive and onerous to move product all over the world.

So I don't -- I wouldn't say that like you would have a -- what I'm not seeing is like you can have a manufacturing footprint in the Pacific Northwest, and let's say we're going to call that a global production source. We're going to be economically limited by having to ship a frozen product. When you got to handle it in the container, you got to put it on a ship, you got to unload it, you got to put it on a truck and a warehouse, and eventually get it to a foodservice operator in Japan. So if you're coming out of Northern China, you got to do the same thing, right?

So just kind of when we do the math on that, I still think the landed cost is what we really look at and say, yes, I think there are some places where you can have landed cost and quality combined coming still out of North America and be pretty effective in Northern Asia, Eastern Asia and maybe if you think like just going down through Central America and parts of South America. If you're coming out of Europe, you're going to hit maybe the Eastern part of the United States, you can hit South America and you can hit kind of North Africa and part of the Middle East, right? And if you're coming out of India, you clearly get the Middle East and Southeast Asia. China, really China for Southeast Asia, China for Northern Asia. I think, is roughly how I would think of the truly competitive markets, not country by country. We call them clusters, but those are some of our kind of cluster -- high level, very high level of the clusters that we look at. And we've gone down deeper within some of those clusters, too.

I don't know if I answered the question, but at least I'm trying to frame it.

No. You did. No. I mean, gosh, if I think about 4 years ago, we were worried about the influx of European imports into the East Coast to the U.S., and there was a whole debate around yellow flesh potato and white flesh potatoes. So I remember being down that path, and my potato varietal knowledge was deeper at the time, I think. But no, it's helpful. No. Thank you.

I think, Jim, where it might be helpful now would be kind of to switch to some of the moving pieces on the model for '27. And I think that conversation probably starts and ends with price. Q4, I think, was your sixth consecutive quarter of volume growth, still had, and you alluded to this earlier, some negative price/mix headwinds at least in the quarter. I think you've implied for fiscal '27 that we kind of continue to have maybe some headwinds at least through the first half. But can you just give us an update on where pricing actions stand today, what we might expect kind of over the cadence of the year and how we should all think about that flowing through probably more for North America, but maybe at a total enterprise level.

Yes. And maybe I'll just keep it to kind of 2 main answers, right, for North America. So one is to the extent that we have channels and we are winning some more volume in one channel versus another, that's going to impact what we report on our top line as price/mix, right? And so we'll always try and give you at least a little bit of detail and say, 'Oh, that was due to mix or channel mix." But if we're going to add customers in multinational chains, because they're a larger customer, they actually have a lower cost to serve, that price point is going to be lower than necessarily if you're going out to individual foodservice operators and you're doing that through distributors with the field sales team, I'm going to have a slightly higher cost there than even if I'm going into retail packaging, where I'm adding a package in a smaller package for the consumer to take home, put in their fridge and then use in their oven.

And so just as we grow in multinational chain, a little bit more so, because we've added some accounts and we've expanded the industry, expanded the market, that's going to have an impact on price/mix, right? But necessarily, like still from a gross margin basis, gross profit dollar basis, that's actually growing gross profit dollars, which is, I think, where we should be focused, right?

The second piece, though, is your question is, "Well, okay, well, now what, Jim? What about price per pound or price per unit? Or what are the actual price pressures?" And we had 2 things, I think, happening in North America. One, we had a pretty healthy potato crop. And so contracting on prices was down a little bit. But everything else has had some inflation since the end of February. So edible oil, freight costs, some of our packaging costs are up. And so we're taking more of an approach where like, "Wow, these are -- this is real input cost inflation." Our competitors are seeing this, and our customers are also seeing it as well. And so it provides a better basis for a conversation with customer procurement teams that says like, "Well, you're facing this cost pressure, so am I. I have to cover it." And it sort of sets, I think, a stronger base for price increases as we go forward. And so we'll see what sticks as we go forward, but we're generally leaning into that.

And remind us, Jim, just from a disclosure standpoint, you all had talked about a price increase, I believe, that went back in the spring.

Yes, March. Yes.

In the mom-and-pop channel, right, the foodservice channel, that's kind of what's the only thing that's been announced at least at this point?

Yes. And so -- and that was -- so you announce it, and there's -- by the way, there's always a little bit of a time lag in our business, right, because you got to announce it and let people work it through their systems in terms of when they actually see the gross list price on the foodservice distributor menu changes, so to speak. And so that was fully effective end of May, June is when we're starting to see that impact. But right now, now because of the continuing hostilities and kind of the volatility and the uncertainty around oil and how oil then works into things like polypropylene indices and soy oil futures, which do have a little bit of an impact on our business, either in terms of how we hedge or actually how we buy inputs.

So that's -- those are real cost input inflation that we anticipated some of that in our outlook as we talked about Q1, and I think we indicated a bit more in the first half of our fiscal '27. But right now, you have to be agile in the business. And so we're thinking about what pricing would be needed now as we think about whether or not this input cost inflation is going to endure and then getting that effective for the back half of this fiscal year.

And Jim, just remind us, for fiscal '27, potatoes roughly 1/3 of your costs, down low single digits, the rest of the bucket is up quite a bit. And so I think you would netted this to around 3% inflation kind of in the cost basket for the year?

Yes, yes.

Okay, okay. Great.

Then I give my traditional CFO caveat, and I got to change that if I need.

Fair enough, fair enough.

I hope there's an MOU. I hope there's a cessation. Let's pray for peace. But yes.

Okay. Okay. Maybe we can switch to the crop itself, Jim, always super topical this time of year. I joked at one point that you could probably fill a 737 with buy-side analysts and fly to Idaho every summer and go pick potatoes out of the ground. But we're in the midst of the main crop in the basin. I know you kind of gave a read on the initial crop, has come through at the end of July. It seemed like relatively positive, and all the checks have kind of suggested that it's been good growing conditions. Just any updates on the main crop. Before this, there's been headlines about fires and smoke in Eastern Washington. Just kind of how we're viewing the main crop as it's coming through kind of in real time.

Yes. I know that there's been some early kind of pull-up signs. And I think that we're seeing that kind of we're normal, maybe ahead of normal in terms of maturity of the crop within the Pac Northwest. And I'd say maybe the Midwest is maybe a week or 2 behind in terms of its maturation, but nothing really to worry about. I think that overall, it looks like -- I think that we're going to be relatively balanced on the North America potato crop side. Yes. No, I'm not seeing necessarily any alarm bells, yes.

Okay. Okay. And same goes for Europe. Jim, I mean, I think your expectation was for a relatively average crop, but that was with the asterisk of, I think, heat stress potentially weighing on yield. So just it stayed really hot in Europe, kind of any further updates as we've gotten into August? I know that was maybe the toggle on part of the inflation guide as well.

Yes. And I think it's -- so overall, Europe, I would say that the -- if I had to take the total potato crop, it is more challenged in terms of its maturation due to the heat. So you're getting kind of an earlier maturity, probably will have kind of less yield coming off of the acreage. It's a little bit more impactful in kind of the main southern part of Europe, so through France, right? And we were a little bit less impacted if your growing region is the Netherlands and kind of Germany.

But nonetheless, I think overall, you're going to see a tightening of the crop and probably a slightly less than normal average crop within Europe right now. That's what -- I think that's what our read is as we look at it. So that should tighten up supply. I think that some of -- the cost of the potato input has gone up on the spot market in terms of just looking at the index. And so we're kind of mostly contracted for that. So I think we're in a pretty solid position as we look forward to the next year.

Is there any potential, the offset? And again, there's always a timing lag. Maybe that means your European costs end up being a bit higher, but does that also help the pricing discussion where, again, things have been really competitive and maybe a bit less constructive than they've been in the U.S.?

Yes. I mean, well, it's tough to -- it's always tough to say what will competitors' pricing do. But clearly, if all competitors are facing a higher raw material cost on the biggest portion of their COGS, then that has to be a consideration. So for us, but yes, I think that having -- just seeing the kind of the demand for the old crop in terms of tightening and then kind of what the new crop looks like in terms of potential output and yield. I just think it's the value of that potato -- the cost of that potato has firmed up quite a bit.

Okay. We had a question, Jim, that came in as it relates -- in light of what we talked about on inflation and crop, we had a question that came in about gross margins. And in particular, right, you talked about inflation maybe being a bit more focused in the first half and maybe even more in the first quarter. I think based on some of the guidance that you all provided a few weeks ago, Q1 implied, I'll call it, a lower-than-normal kind of gross margin, somewhere with a low 18% handle, I think, is where I saw consensus last.

So I guess the question is just kind of remind us of the puts and takes as we get into Q1. I know you just spoke a few weeks ago, but particularly around the gross margin side. And hey, maybe there's some prudence that's baked into that, maybe there's some real things that are coming at you, but just how we might think about that in light of the discussion we just had.

Yes. And it's always challenging to be able to say, "Well, am I going to answer this quarter? Or am I going to answer like what's the 2- to 3-quarter trend that we're in?" Because that's our business model. So really, there's 4 drivers. What's our volume, where is our pricing per pound relative to our potato cost and relative to our other than potato costs. And so what we had coming into Q1 is we had some pretty solid volume, and we've referenced sales volume, and some of that's due to contracts that we won that we're still continuing to lap. I think we've had some price carry through. So we've had some -- we've indicated that we'll have some price/mix challenges. I've talked about the channel mix, but also just the pricing, particularly in EMEA as that has been more of a competitive environment.

The potato cost was helping us, and now that will look like that will firm up more as we go into Q2, 3 and 4. And then really, it's the other than potato input cost inflation, which we've referenced. And so if you have kind of higher other than potato input cost inflation and I have and I'm inheriting kind of a price trend, then on the volume that I'm going to sell, I'm going to kind of lead to a quarterly pressure on that gross margin, right? But as we go forward and we think about, "Well, wait a minute, we should be able to address the other than potato input cost inflation as we think about pricing actions," we're going to hold on to that volume, which really helps us with utilization, and then let's just track where potato costs are and be agile as we go forward, right?

So for us, I think it's really moving a bit, maybe is it an inflection point? I don't know if it's an inflection point, but it's just simplifying what we really need to focus on in order to really work that gross profit margin. And as the more successful we are managing and expanding that gross profit margin, it's going to fall through the whole P&L and results.

Great. Okay. Another question that came in, Jim, and this maybe speaks to more broadly the EBITDA guidance, but ties to the gross margins as well, is your EBITDA improvement for this year on a -- I'll call it, on a 52-week basis, right, on a like-for-like, I think is driven almost entirely by international. And I know you had some, we'll call them, one-off type events in international in fiscal '26. So maybe you can just kind of walk us through, if North America EBITDA is going to be flattish this year, which we could talk about the level of prudence that's maybe embedded in that, but just what -- kind of, on the international side, like what changes? What gets materially better that's driving total enterprise EBITDA to improve for this year?

Yes. And Peter, maybe can I ask, like EBITDA dollar growth or EBITDA margin expansion?

Sorry, the dollar growth. Yes, the EBITDA dollar growth that you outlined for this year.

Okay. And I think when we talk about the full year for international, if I can start there, right, because this can also go a little bit to pluses and what are some of the opportunities and what are some of the downsides that are in our guidance that at least I see at this point in time, right? So for international, we had a couple of one-timers that we were going to overlap. And so we need to be really forthright on those, right? So we don't expect a potato write-off, and we don't expect some of the transition costs that we had in Argentina for moving from one plant down to the Mar del Plata plant. But on top of that, we still were expecting -- and I'm not going to say recovery, I'm going to actually say growth in our regions other than EMEA, right?

So we were still very much looking at ramping our volume in LatAm and continuing with our growth in China. And that is, again, against plants that are not fully utilized, right? And so if you have a plant that's in a 50%, 60%, 70%, 80% utilization, you get that next 10% of utilization, it allows your semi-variable and your fixed cost to be better amortized, and that actually contributes to gross profit margin expansion, it contributes to EBITDA dollar growth, okay? And that's just in the normal course of, you put a really big asset in 1, 2, 3 years ago, you got to ramp on that, you should be able to get incremental profitability as you ramp up that volume. And so that was the heart of some of our international plan. And so beyond the one-timers, we did expect some growth.

And we were still a little bit like really quite neutral on EMEA because we did see the input cost inflation. We have seen the Middle East volume disruption. It's not a big part of our shipped volume out of EMEA, but it's there, right? And so I don't know if we have any better clarity on that. We have a couple of things happening. One, I think the Continental Europe consumer on traffic is slightly healthier than it was 52 weeks ago. We've recently talked about the potato crop. So we'll see how that firms up and then what does that imply in terms of pricing that we'll see in Europe. So that's still kind of a bit of an unknown.

If I shift gears to North America and I think about the already high level of profitability we run this business at, I think first and what I get more excited about is like we still have quite a bit of cost savings initiatives underway and very much had the benefit of those in '26, and we've talked about the benefit of those into '27 and even '28 as we take actions to really optimize how we make and how we move our product. And then we'll talk about the other aspects of -- so that helps us with volume and serving customers. And with pricing, I think, is relative to some of the other than potato input cost inflations, and we'll watch potato.

Maybe what we haven't talked about is the power of innovation within either North America or the rest of the world, but I really see that as, particularly in North America and in the U.S. market, 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's limited-time offers or stuff that expands the franchise value, this is a wonderful category to go get creative and have some fun in. And it's a great way for us to add 0.5 point, 1 point of growth as we look forward. That is also then, I think, margin expansive.

Great. All right, Jim. So with the last few minutes, I'm going to go rapid-fire because I've got a bunch more questions coming in. So one is on the international margins, over time, kind of what do you see in terms of the new normalized margin for international? Maybe this is something you're going to get into over time. But is this kind of a permanently impaired number, lower than historical? Just given some of the changes, where should we kind of broadly think about the run rate maybe out 2, 3 years?

Yes. I mean, well, I hope that the run rate is higher. I mean I think that's what we're all working towards. What I'd like to see is 2 or 3 things happen. One, continued maturation of our top line with our utilization in China, continue to serve our business in Asia Pac and in LatAm. And then in EMEA, what I think is I'd like to see is us complete some of the manufacturing network optimization actions, which will be like more in our control and definitely have a bottom-line positive impact. And then what I don't know is really what's going to be the demand like for the consumer in Europe and what's the demand for shipments into the Middle East.

I'm hoping that those could be better, but like you guys can see the numbers just as much as I can see the numbers as well, right? And so just if you have less inflation overall impacting the consumer in Europe, that's going to be good for eating out. That's going to be good for our occasions and our attachment rates and our consumption.

Great. Two more. One is maybe a step-back question, Jim, and for zoom out. But just asking about fry demand in a world of health and wellness and GLP-1. This was a huge topic at the 2023 Investor Day. That was like peak fear. The stock was down 15% on the day. We now have 3 more years' worth of data. Just what all have you seen internally? What are your restaurant partners saying? I feel like I'm still eating the same amount of French fries, but maybe I'm the exception, not the rule. But how you all have kind of framed that up internally?

Yes. And look, obviously, I think we -- each of us has a lot more familiarity with GLP-1s and kind of what does it do to kind of eating occasions and eating habits. I will say that like the one thing to maybe step back and just reset the baseline for us is that we weren't a big snack occasion. We didn't rely on snack occasion. And so to the extent that you had a main meal, so whether or not it's, "Hey, I want to focus on breakfast. I'm going to get my breakfast sandwich," "I want to focus on my protein. I'm going to have my main meal as breakfast in the day, that's where I'm going to get my calories." And then, "Maybe because of my GLP-1, look, I may not be eating lunch, right? And then I'll do a dinner."

But on the main occasions, so whether it's breakfast, lunch or dinner, I think that's normally where you would see fry attachment. And I don't think there's anything necessarily that's against French fries or potato. I mean a potato as a carb is one of the better ones. And from a natural point of view, we're very simple, right, potato, sea salt, in some type of oil. So there's not a lot of kind of UPF going on in our product. And so I think that we have a bit less exposure to that than maybe some might imply. And obviously, look, most of our business is in foodservice. So to the extent that you have -- I mean, the wonderful thing I like to say is you have your own portion control. The foodservice operator is not selling 2 different packs of French fries, right, at least not what we're seeing, right? They're still trying to hit a value price point. They're still giving the same portion.

So whether or not you eat 1/3 or half or you actually consume the whole pouch. I still think you get the enjoyment of the eating occasion, right? Everybody loves a great fry. And so I think you get to kind of pace yourself a bit more if you're on a GLP-1 versus not. And so again, the vast majority of the market is not on GLP-1s. And so foodservice operators still have to sell to that because that's the dollar occasion that they're actually trying to reach.

Great. Okay. Last one and then a fun one, Jim. Any previewing you can do for us on the Investor Day that is potentially slated for early calendar '27? I think we're all waiting with bated breath. And then the fun one is, where is the best French fry in Idaho so far? Where have you discovered?

Interesting. So hey, I think for Investor Day, I don't want to steal Jan and Mike's thunder, but I know that they're excited very much. I think they want to talk about the market opportunity and what could be the portfolio story and then really, what are some of the insights behind those growth paths, which I think is really cool. I mean, for me, I get excited because, hey, I get the whole front of the business backing up, whether it's a 3- or 4-year growth outlook. And so when we do Investor Days and they come together and they strategically and they economically make sense, then the numbers are out there and then you all hold us to say we'll go and deliver them. So I think that's -- for Investor Day, I think that's really what we're excited about.

On the French fry, so I'm not going to answer Idaho. I am going to answer Amsterdam. And I had a -- it was like a wave-cut potato. It was a French fry. Maybe 2 millimeters thick, but like super dippable, and it was like this piece of innovation that we're doing. And I just thought it was like so creative, right, because you could like -- think of it, it was like you could like scoop with it, but it was hot, and it had a great texture on it. And I'm like -- and I looked up with the team in Amsterdam, and I'm like, "Man, you guys need some chili with this," and they had no idea what I was talking about. I'm like, "Oh, okay, that one didn't go over well." But if you had some green chile with those fries, it would have been, yes, a really great experience.

Yes, Debbie has the marching orders for the Investor Day, and we need to bring Amsterdam fries and maybe a beer, Jim.

Yes. Well, I'm there in 3 weeks -- I'm going back to Amsterdam in 3 weeks. I'm bringing 2 jars of chile verde over.

Well, with that, we'll wrap there, but I want to thank Jim and Debbie, again, and everybody on the call and on the webcast for joining. Jim, thanks again for a very informative discussion. We got a lot of great feedback. So thanks for spending the time with us. And everybody, enjoy the last few weeks of summer here. Take care.

Okay. Thanks, Peter. Thanks, everyone. Cheers. Bye-bye.

Good day, and welcome to the Lamb Weston Fourth Quarter and Full Year Fiscal 2026 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Debbie Hancock. Please go ahead.

Thank you. Good morning, and thank you for joining us for Lamb Weston's Fourth Quarter and Full Year Fiscal 2026 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You will find both on our website at lambweston.com.

Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements.

Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix to our presentation. Joining me today are Jan Craps, Executive Chair; Mike Smith, President and CEO; and Jim Gray, Chief Financial Officer.

Each will provide prepared remarks, and then we'll be available to take your questions. I will now turn the call over to Jan.

Thank you, Debbie, and good morning, everyone. I'm happy to be with you today for my first earnings call at Lamb Weston. I will start with observations from my first months as Executive Chair, then turn the call over to Mike and Jim for the review of our performance. I will come back at the end of our call with additional remarks about the road map ahead before we take your questions. In the next hour, we plan to spend about 2/3 of our time on prepared remarks and leave about 20 minutes for questions.

It's a real pleasure to work with this Board, management team and partners. I joined Lamb Weston in early February after more than 20 years with ABI, most recently as a CEO and Co-Chair of Budweiser APAC and APAC CEO for ABI. Now let me share what attracted me to Lamb Weston. First, the company operates in an attractive and growing category, expanding volume, price, mix and margins over time, largely serving foodservice customers on multiyear contracts.

Second, Lamb Weston is a scaled leader with an advantaged plant network in this great category with a strong and growing core North American profit pool, significant cash generation potential and a meaningful turnaround opportunity and optionality across our international footprint.

And third, Lamb Weston has a seasoned Board making swift and purposeful decisions to drive incremental value for shareholders. My role as Executive Chair has several key responsibilities: chairing a deeply engaged Board of Directors to set the company's priorities and track its progress, focusing on people through talent development and building a performance culture, leading the next leg of our strategy development, including where to play, how to win inorganic moves like M&A and partnership or divestitures and driving a clear growth algorithm.

Mentoring Mike and the executive leadership team, providing insights on priority topics like embedding a cost culture, realizing tech and benchmarking opportunities where my past experience complements the leadership team's expertise. And finally, working with Mike as he continues to lead the daily operations of the organization as a CEO, translating our strategic plan into a robust operational plan and driving the execution of our strategy and our teams to deliver results.

It's an exciting time to be part of Lamb Weston. Let me wrap up my opening remarks with observations and reflections from my global onboarding sprint so far. Over my first 100 days, I spent a significant amount of time meeting our teams and getting to know our people. They are passionate about our business. I've engaged with our colleagues at more than 15 plants in the U.S., in the U.K., Europe, China and Australia, so more than half of our facilities.

I've visited farms, customers and stores, and I've spoken with select analysts, bankers, investors and industry players. I've been struck by the energy and ideas across our value chain and ecosystem. I'm encouraged that we are rebounding confidently from a period of uneven execution and disruptive market dynamics, controlling the controllables, including rebuilding North American volumes on a more resilient and efficient supply chain. And I see a leadership team that is embracing more strategic clarity and choices, a deeper performance culture and sharper focus on costs, cash flow and consistency.

While the Focus to Win strategy is in its first year, I view it as the right first steps for Lamb Weston, implemented with an essential customer-first mindset. I view execution of the first phase of Focus to Win as a key step of a broader program to improve performance and returns on capital at Lamb Weston. I'm encouraged by our team's progress and execution of this first phase. In parallel, we are driving initiatives to expand those efforts more broadly across the organization in subsequent phases of Focus to Win.

I will discuss some of these efforts later in our call, and this will culminate in an Investor Day in early calendar '27. The key message I want you to take from me is that there is focus and alignment in driving this company to achieve its full potential. To that end, and in support of this opportunity, I have made a significant personal investment in Lamb Weston shares, and my compensation is tied to the stock price. I don't participate in the annual incentive plan. I am rewarded if you, our shareholders, are rewarded.

With that, let me hand it over to Mike.

Thank you, Jan. It's great to have you and Jim with us today. I am excited about the work we are doing together to accelerate and build on the foundation we have in place. And good morning to everyone joining us today to discuss our fourth quarter and full year results. The key message I want to leave with you today is that we made meaningful progress as an organization in fiscal '26. I told you a year ago that Lamb Weston was on a journey to rebuild its credibility with both our customers and investors.

I believe fiscal '26 was a strong step toward that goal. We delivered for our customers in the way they expect of us, and we delivered on the financial targets and key performance milestones that we shared with you on our July 2025 call. I want to start again this quarter by thanking the Lamb Weston teams around the world for their efforts in executing a new strategy in a challenging and dynamic market.

Together, we delivered a solid quarter and year, led by the strength of North America. Throughout fiscal '26, we stabilized our North America business, growing volume, sales and EBITDA for the full year and ending with a 26% segment EBITDA margin. Internationally, in the fourth quarter, we faced disruption in shipments and volatile input cost inflation from the Middle East. Jim will speak to our fourth quarter performance shortly.

As we've previously discussed, market conditions drove greater competition and pricing pressure, notably in EMEA. We are controlling the controllables and setting a strategic plan to maximize returns across our global footprint, including closing a facility in the Netherlands. We invested effectively, significantly reducing capital expenditures and delivering strong cash flow. And we returned $321 million to shareholders, bringing our total return since going public to greater than $2.2 billion.

Today, I'm going to focus on what we accomplished this past year, my first full fiscal year as CEO. Jim will then review the financials, and Jan will speak to the strategic work he is leading as Executive Chair. Within our Focus to Win strategy, strengthening customer partnerships has been my top priority since taking over as CEO. We have worked to reaffirm our role as a trusted partner. We drove the mantra of customer centricity across the organization.

We focused our commercial teams on joint business partnerships and value-added relationships. Our supply chain organization was laser-focused on meeting our customers' quality, service and order fill rate requirements. And our marketing and innovation teams ensured we armed our customers with insights and menu items to stand out in the marketplace. These efforts have delivered 6 consecutive quarters of volume growth.

And in Q4, volume and share grew in North America despite the demand-challenged market, and we grew in opportunity regions such as Asia Pacific and Latin America. During the year, we extended several of our largest strategic customers' contracts. We seamlessly supported significant new customer rollouts. We partnered on menu innovation, including value-add higher-margin LTOs, and we facilitated the store and geographic expansions of our customers.

In the U.S., where we measure Net Promoter Score, according to proprietary research, our NPS increased over last year and is the highest among major competitors. Our customers value Lamb Weston. They trust us. They demand our quality. They rely on our service and our innovation. We are committed to creating value together. Executional excellence is another strategic pillar we significantly advanced this past year. Similar to reaffirming customers' trust, this was another top priority for me.

Our increasingly nimble supply chain team facilitated this customer success, meeting the demand and incremental North America volume while also driving improved operational efficiencies, recurring cost savings and debottlenecking plants to increase capacity. We are moving in the right direction with the opportunity for improvement as we bring standardization and adopt best practices across our manufacturing network.

As we further develop our demand planning systems, we believe that outstanding individual plant operating teams can be even better together. Outside North America, we are optimizing supply chain assets globally to reduce our costs and better meet future customer demand. During fiscal '26, we opened a new state-of-the-art production facility in Mar del Plata, Argentina. This facility provides us with a clear advantage to deliver some of the highest quality and premium product in the region.

As we ramped up production, performance and profit improved throughout the year. We closed an older legacy facility and consolidated production into one location. Volume is up, utilization is better, and we have room to grow. In China, our newest facility in Inner Mongolia has a similar trajectory. Opened in 2023, this facility provides us with additional local processing capacity in a growing market. We've grown volume and net sales double digits since opening the facility.

These strategic facilities are big bets in important growth regions that take time to build to optimal utilization. Our local presence has led to expansion of our market opportunity and additional customer wins. In Europe, our efforts to meet global customer demand and maintain a competitive advantage have led to the reduction in our footprint. During Q4, we temporarily curtailed a line in the Netherlands.

And in early June, we announced our intention to close an older production facility in Broekhuizenvorst, which is also in the Netherlands. That facility represents about 10% of our EMEA production capacity. These actions, while difficult, will rebalance our capacity with demand and build a foundation for more effective network utilization and lower costs. And as it has been reported in the media, the industry has announced some delays to new production. There is significant work being done behind these decisions about where to play and how to win. Jan will speak to this next layer of our strategy work shortly.

Another significant deliverable in our Executing with Excellence pillar is lowering costs and improving productivity. The team has done a tremendous job of identifying and successfully executing against opportunities. A year ago, we launched a cost savings program to deliver at least $250 million of annualized run rate savings by the end of fiscal 2028. After year 1, we exceeded our first year milestone of $100 million. This is the result of a lot of hard work from everyone at Lamb Weston.

Based on the success of the program to date in delivering structural savings to supply chain, reducing our manufacturing cost per pound and reducing SG&A costs, we will continue to pursue additional opportunities to improve our cost structure and capital efficiency. These savings have offset inflation and allowed us to invest in targeted support for our customers and to offset some mix headwinds. We believe the investments that we have made in our customers has strengthened our base and will lead to future opportunities to create value together.

Our price/mix investment has moderated in Q4 and the combination of strong volume demand and cost savings is beginning to show results as evidenced by our fourth quarter North America EBITDA margin expansion and dollar growth. Finally, disruptive innovation remains a key unlock in our value add for customers and consumers. Innovation drives traffic, unlocks new markets and anticipates consumers' changing taste preferences.

In fiscal 2026, we launched new items at retail, including private label innovation and new Alexia seasoned items. And with foodservice, we introduced operator and distributor innovation as well as Lamb Weston batter line extensions. Our consistent focus on innovation has increased the percentage of net sales coming from new items, a key KPI in measuring our innovation success.

And this month, we launched new items aligned to consumer preferences, expanding our Alexia olive oil product into additional retailers and launching similar products into the foodservice channel. There is more to come this fall with disruptive innovation launches for both retail and foodservice. At the core of our success is our people. Throughout the year, we worked to develop a continuous improvement and performance culture.

As leaders, my team and I led with transparency and clarity. We ended the year with improved employee engagement scores, and we are building on this going forward. We also added depth to our Board and management with additional global and strategic expertise from Jan and more recently, the addition of Jim as CFO. Earlier this month, Amit Philip joined us in the new role of Chief Strategy and Technology Officer. Amit brings expertise from a distinguished career spanning consulting, technology and food manufacturing, including leadership roles at TreeHouse Foods and the Hershey Company.

In closing, we delivered a solid year driven by sustainable results, including a strong recovery in our North America business, meaningful progress in executing Focus to Win, especially with customers and execution, a greater-than-anticipated achievement of cost savings, improved capital discipline and strong return of capital to shareholders and strengthened engagement with our teams and new executive team members.

The year was not without its challenges as the International segment absorbed start-up costs associated with our new Argentina plant and an industry slowdown in the EMEA region. And across the business, we faced volatile inflation at year-end due to the Middle East conflict. We are addressing these issues head on. I am proud of what we accomplished this year, and we have strong plans to continue driving progress in fiscal '27 and beyond.

I will now turn the call over to Jim to review the financials and our outlook.

Thank you, Mike, and good morning to everyone. I've been with Lamb Weston since April, and it has been a pleasure getting to know the team and see our operations in the basin as well as the Netherlands. We have a great team, and I'm excited about the opportunities to create shareholder value. Let's turn to our performance, which was a solid result fueled by North America.

Fourth quarter net sales for the company increased 6%, led by a 7% increase in sales volume and 2% favorable currency impact, partially offset by 3% decline in price/mix. It was the sixth consecutive quarter of sales volume growth. On a constant currency basis, net sales were up 4%. As Mike said, our North America segment had a strong Q4. North America net sales increased 9% with sales volume up 11% as momentum continued with customer wins, share gains and strong retention as well as the addition of an extra week.

Price/mix declined only 2%, with price and mix equally impacting the quarter. Modest investment in price and trade and a continued mix shift towards lower-priced channels, including chain and private label, drove the change. Looking at the underlying market drivers for this quarter, as reported by Circana CREST, U.S. restaurant traffic was flat. QSR traffic was also flat, led by 3% growth in QSR chicken, largely offset by a 4% decline in QSR burger traffic.

In our International segment, net sales declined 2%, led by a sales volume decline of 2% and price/mix decline of 4%, partially offset by favorable currency impacts. Sales growth in Asia Pacific and Latin America was more than offset by challenging market conditions in EMEA, including the impact of the Middle East conflict, which began early in our fourth quarter of fiscal 2026.

Internationally, QSR traffic in the quarter declined 2% in the U.K. and France and 1% in Italy, however, was up slightly in Germany and Spain. Adjusted EBITDA declined $6 million compared to last year as North America adjusted EBITDA dollars grew 17% or $45 million. In Q4, North America sales volume grew with modest price/mix investment and cost savings more than offset inflation.

Our international decline was driven by EMEA challenges. We were carrying higher raw potato costs into the quarter, and we experienced higher fixed cost absorption due to slower European demand. Furthermore, we incurred higher incremental freight costs as a result of the Middle East conflict. For the company, inflation in the quarter was up more than we had expected. All inputs other than raw potato prices were up with a substantial increase in edible oils and transportation costs.

Demand for biodiesel has driven up the cost of most edible oils. And while we are hedged against oil, we are seeing spot price inflation. The input cost volatility experienced in Q4 impacted the quarter and also carried into the cost of our finished goods, which we will move through in the first quarter of fiscal '27. Adjusted SG&A increased $16 million in the quarter as cost savings benefits were more than offset by higher incentive compensation.

On a full year basis, net sales increased 2%, led by a 7% increase in sales volume and 1% increase in favorable currency impact, partially offset by a 6% decrease in price/mix. The North America segment delivered 3% net sales growth for the year, led by a 9% increase in sales volume, partially offset by a 6% price/mix decline. This included an $86 million benefit from the 53rd week.

International segment net sales increased 1%, led by a 5% favorable currency impact and 2% sales volume growth, notably in Asia Pacific and Latin America. These gains were partially offset by a 6% decline in price/mix. On a constant currency basis, net sales were down 4%. In addition, the extra week added $41 million to the full year results.

Full year adjusted EBITDA was down 9% as international challenges were only partly offset by growth in North America. In North America, higher sales volume, lower manufacturing cost per pound and the benefit of cost savings more than offset inflation and price/mix investment. Internationally, the decline in EBITDA was driven by lower organic sales given the competitive environment as well as higher manufacturing cost per pound.

The higher costs included write-offs of excess potatoes, lower utilization of our international production facilities and start-up expenses for our new plant in Argentina. These were only partially offset by the benefits of cost savings initiatives. The extra week added $29 million in adjusted EBITDA for the year.

Cash generation has improved significantly this year. In fiscal 2026, we generated $943 million of cash from operations, up $75 million versus last year. The increase is largely attributable to $55 million of favorable changes in working capital. Capital expenditures were $410 million in the year, down more than $240 million year-over-year. Our focus on execution and capital discipline has enabled us to deliver $537 million in free cash flow for fiscal '26, a significant increase year-over-year.

Our liquidity remains strong with approximately $1.3 billion available under our revolving credit facility. Net debt was $3.8 billion, and our net debt to adjusted EBITDA leverage ratio was 3.4x on a trailing 12-month basis. For the full year, we have returned $321 million to shareholders, including $208 million in cash dividends and $113 million of stock repurchases, of which $63 million was repurchased in the fourth quarter. In addition, we announced this morning the next quarterly dividend of $0.38 per share to be payable on September 4.

As we look to fiscal '27, our position with customers, lower cost base, improved operating efficiencies and the lap of onetime items provides us with a view to expect earnings to grow faster than sales in the coming year. In fiscal '27, we expect net sales to be flat to up 1% versus a 52-week adjusted net sales base of $6.5 billion for fiscal 2026. We are focused on sustainable earnings growth.

In fiscal '27, our adjusted operating income target is a range of $720 million to $800 million. The benefits of lower raw potato costs, incremental supply chain cost savings initiatives, favorable fixed cost absorption from higher utilization and the lapping of fiscal 2026 potato write-offs and Argentina start-up costs are anticipated to be modest -- mostly offset by inflation in essentially all other input cost areas. We will continue to drive cost savings in both cost of sales and SG&A.

In fiscal 2027, we expect SG&A to decline as a result of these efforts. Equity earnings from our JV in North America is anticipated to grow modestly as we have restarted curtailed lines. We expect interest rate expense of approximately $190 million and effective tax rate in the range of 25.5% to 27.5%. We anticipate adjusted EPS to be in the range of $2.95 to $3.25 versus the 52-week fiscal '26 adjusted EPS number of $2.90.

We anticipate diluted common shares outstanding to be between 137.5 million and 139 million. Adjusted EBITDA is expected to be in the range of $1.1 billion to $1.2 billion versus a comparable $1.128 billion over the 52-week period of fiscal '26. In fiscal '27, we anticipate cash used for capital expenditures of approximately $380 million to $410 million. This estimate includes carrying amounts from projects started in the prior year.

Going forward, on an accrual basis, we anticipate investments of up to $350 million. We are improving capital efficiency through the better pacing of investments, process improvements to debottleneck, which also expands capacity and strong rigor on returns on investment. In addition, our anticipated wastewater-related spend will largely be complete by the end of fiscal '27.

Operating cash flow remains strong and is expected to be in the range of $750 million to $800 million as we expect to hold the investment in working capital relatively flat year-over-year despite an anticipated increase in net sales.

Our company net sales outlook of flat to up 1% assumes flat global restaurant traffic. Our range for EBITDA outcomes on the low side largely reflects uncertainty around the Middle East impacts on global input cost volatility through the first half of fiscal '27. The upper end of our EBITDA range would assume more favorable net sales from customers, channel and product mix as well as delivery of cost savings.

North America is expected to continue top line sales volume growth and market share gains. Net sales on a comparable weeks basis is expected to be flat to up low single digits with low single-digit volume growth and low single-digit price/mix decline. North America EBITDA is anticipated to be flat to up low single digits as modest price/mix investments combined with cost inflation are anticipated to be offset by sales volume growth and our ongoing cost savings initiatives.

Our International segment top line is anticipated to be down low single digits. Driven by the challenging competitive conditions in EMEA, price/mix investment is expected to be low to mid-single digits, partially offset by low single-digit volume growth. We expect top line growth in the other regions in International. International segment EBITDA is anticipated to improve between 40% and 50% as we lap an incremental $33 million of pretax charges for potato write-offs as well as start-up costs from our Argentina facility.

Overall segment EBITDA is expected to reflect positive contributions from international regions outside of EMEA, SG&A savings and operating leverage, partially offset by price investments from carryover and a competitive environment. To help with modeling the cadence through the year, in Q1, we expect the carryover effects from the cost of the prior year potato crop and edible oil inflation to have a greater impact. For the first quarter, we anticipate net sales to be flat and EBITDA to decline in the low teens before growth ramps through the remainder of the year.

Shifting to an update on the potato crop. In North America, the crop year is off to a strong start with favorable weather and crop development slightly ahead of historical timing. Our contracted acreage is modestly higher year-over-year to support increased sales volume growth. In Europe, the crop year is also off to a favorable start with good growing conditions across key regions.

Our expectation is for an average crop, but it is early in the season. Planted acreage is down year-over-year with a more pronounced reduction in contracted volumes across the industry, including our own. With that, let me hand it back to Jan.

Thank you, Jim. When I joined Lamb Weston, I decided to invest significant time and energy in a deep onboarding process to get to know the business well and identify the biggest opportunities for these turnarounds. My global onboarding sprint and deep engagement so far with fellow Board members, senior leaders and the broader team and partners have reinforced the reasons I joined Lamb Weston and are informing how we unlock additional value in the business rapidly from here.

We have a strong foundation, a good start with a Focus to Win strategy and an opportunity to be even bolder in our decisions, braver in our performance targets and acting with even more urgency in our initiatives and execution. We have momentum underway to make the business more predictable, more profitable and more valuable. To accelerate change with incremental initiatives and to drive structural change throughout the business, I'm focused on 3 priorities: people, strategy and resources.

I'm driving 3 key initiatives within each priority. So first, people. My top priority is unlocking our greatest assets, our people. Our first initiative within our people strategy is performance culture. In fiscal '26, we added ROIC and free cash flow already to our compensation metrics. To fully achieve the potential of Lamb Weston, we are building a performance culture by adding enterprise entity and individual targets. We are driving individual accountability and ownership through the tighter use of individual KPIs based on hard quantitative results.

We encourage stronger collaboration among our teams through country and region level entity targets for net sales, adjusted EBITDA and cash generation, a change we have already approved for this fiscal '27. For example, Mike's 5 individual targets as a CEO are designed to deliver holistic improvements, including net sales growth, big bets innovation growth, targeted growth in some focused regions as well as ambitious SG&A targets and EBITDA margin improvements.

Our second initiative within people strategy is leadership talent. Here, recent appointments, including Jim as CFO and Amit as Chief Strategy and Tech Officer, are strengthening our talent bench. We are elevating the talent management process and strengthening our succession planning to ensure we are identifying and developing top-tier talent around the world.

Finally, people strategy addresses organization design. We are implementing an organizational design which focuses on simplicity and accountability to enable faster decision-making. My second priority is strategy. We kicked off rigorous new strategy work that defines which market clusters or logical groups of countries, profitable growth will come from, where to play in this landscape and how to win in these priority markets so we drive sustainable profitable growth.

As Mike and Jim have shared, we have made big progress over the past year, reconfirming our leadership with North American customers. That business has stabilized. It is operating with less volatility, and the team delivered a strong year with a healthy profit profile and more efficient operations with more room for growth. As we look beyond North America, we are working to identify new routes to growth and value creation with the right international footprints.

We will make choices and allocate different roles for different geographic clusters with sharper resource allocation. We will use M&A partnerships and divestitures together with our organic growth priorities to navigate and execute these outcomes across clusters. This will lead to a renewed growth algorithm. Third is our resources priority. Over the past year with Focus to Win, the company already began implementing a cost program. And we are now taking that further to drive a deeper cost culture in SG&A, capital expenditures and working capital, driving immediate impact on the business results.

Across the globe, we are creating a culture connected to cost where costs are reset to 0 and justified on current business value rather than historical habits. Spend is connected to strategic outcomes through granular KPIs and savings help rebuild margin and fund high-return innovation, market expansion and organizational resilience. We're also implementing more rigorous planned rankings and adopting best practices to continue to drive supply chain efficiency.

Finally, we invest smartly behind clear and simple technology priorities, including leveraging the potential of AI to be ever more efficient over time. Looking ahead, we expect to drive outcomes in a business with more durable growth and less volatility than many anticipate. There is a high sense of urgency in the organization to drive change and impact in an accelerated way. I'm energized by our momentum and potential.

We see significant opportunities to build a high-performance culture, sharpen our strategic clarity and growth algorithm and strengthen our cost discipline, supply efficiency and tech capabilities. And we are undertaking this as a seasoned and aligned Board and leadership team. We look forward to sharing more with you in future calls and at our Investor Day in early calendar '27.

We will now take your questions.

[Operator Instructions] We'll go first to Andrew Lazar with Barclays.

Maybe first off, just for you, Jan. I realize management and the Board are still working through various possible actions to sort of solve for sort of international profitability. I guess my question is whether there are certain limits to what actions can be taken or are all options on the table regarding where and how the company should compete? Or are there certain maybe structural limitations around what can be done that maybe I'm not aware of?

Thank you, Andrew, and great to connect again. Thank you for your question. Yes. So as I mentioned, we're kind of in the middle of our strategy work now. It's really a fact-based disciplined process. And we're really looking at net landed costs, where do the profit pools develop and what are the clusters of countries that will drive our growth. And then we looked at where to play, how to win. And really essentially, it sets us up to make choices between these country clusters as we grow -- as we build our growth algorithm.

And as a result, we are going to be allocating different roles to different country clusters, where today, maybe every country is trying to achieve everything in a certain way. It will be more -- there will be more clarity as to what is the mission of each country cluster, which will also drive sharper resource allocation. So that will then, in turn, drive any decisions on M&A, partnerships and divestitures that will really be a result of this work.

And to your point, technically, everything is on the table as we look through the different country clusters and their role to drive the growth algorithm. So we're really in the middle of the work right now, and we will come back to you with more details at the Investor Day. But the other thing is the team is not sitting still while we do the strategy work, right? So maybe it's helpful, Andrew, if I hand it over to Mike. And maybe, Mike, you can talk us through how we are improving the EMEA results in the shorter term as well.

Yes. Thanks, Jan. Andrew, as I think about the work that we're doing right now, as Jim cited, LatAm, APAC had a good quarter. And really some of the challenges we're seeing are in EMEA. But we're not sitting back. We're really trying to control what we can control. I think one thing to remind the group is that the industry is facing 3 challenges really. Last season, we experienced really high yields, more acres were planted and that led to a lot of extra potatoes in the marketplace, which then were processed.

The second piece was around the fact that there was a lot of excess capacity in the marketplace. Some of that was driven by demand. Part of that was driven by less exports from Europe as new capacity was built in some of those developing markets. And then the third area of challenge for Europe is really around the traffic slowdown, similar to what we've seen in other areas around the globe.

The thing we're doing in each of those areas is that when you think about the potato crop, it resets every year. And as we shared in the prepared remarks, we reduced our acres in EMEA. And there's some industry reports out there that suggest that acres are down across the EMEA region. We recently announced closing of Broekhuizenvorst. We believe that will improve our utilization rates by about 10 points and get us into those high 80s, low 90s.

We're also consolidating that Broekhuizenvorst and some of the other facilities that we've closed or curtailed into more cost-efficient plants. And I'll tell you, by doing some of that, I have a lot of confidence that we're going to be able to serve our customers even better. There's even been some media reports out there that there's been other companies that have delayed some new production.

And then the last thing I'd just say is as it relates to some of the pressure around traffic, we are seeing some softer traffic in the area. But in EMEA, we have some clear initiatives and programs in place that are going to help us offset the impact through lower costs. So really proud of what the team is doing, and they have plans in each one of our regions around the globe.

Really, really helpful color. I appreciate it. And then just one quick follow-up. I know it's probably still early in the process a bit. But I guess, where is Lamb on sort of negotiations with some of the key sort of customers that come up for contract renewals as we go forward? And I guess I'm just trying to get a sense of the visibility you have to sort of pricing and the competitive environment in North America in '27 now that industry utilization is back into the low 90s.

Yes. So I'd say when it comes to contracting, we're in the very early innings of that, just kicking things off. I think one thing to remind the group about is we have moved to that contracting calendar. About 1/3 of our large QSRs come due for contracting every year, similar to what we've had the last 2 years. And so we'll see that for this fiscal year as well. There's nothing I would say that sticks out to me as being an anomaly this year. But like I said, we're early in that process, and we'll share an update next quarter.

As I think about price/mix, as you mentioned, Andrew, we have grown volumes, and we see a more balanced supply and demand in some of our regions, that allows us to be a bit more thoughtful about how we go after incremental volume. And as you look at our quarter performance, last quarter, we had shared that we had recently taken a price increase in our North America business to cover that input cost inflation across all of our categories except potatoes.

And as we start to look at the impacts of potential price/mix in the future, we'll base the need for pricing changes on that input cost inflation and the margin requirements it takes to invest in our business to be able to support our customers. So like I said, contracting is just starting off, and we'll give an update next quarter.

We'll take our next question from Peter Galbo with Bank of America.

Maybe, Mike, just to ask on the back of Andrew's question around kind of the country cluster work as it relates more so to capacity in the manufacturing network. I mean, assuming the U.S. is kind of in a state now that's better and maybe you're not going to do as much there, a lot of the capacity expansion that's happened in the last 5 or 6 years has been international. And so a lot of those plants, I would imagine, are relatively new.

And so as you go through the process of identifying countries and areas you want to be or don't want to be, just how are you factoring in how new some of this capacity is and how you've spent a lot of capital in some of these markets and to kind of give that up now after, again, these are probably highly efficient plants. Just how that's factored into the decision.

Yes. I think one thing to keep in mind, Peter, is, listen, our company has been around for 75 years, and this industry has been around for a long time, and there are a lot of older facilities around the world. When I think about the capacity out there, a lot of it is kind of driven by new additions in some of those developing markets, and that's reduced that export demand, like I said earlier, out of Europe.

When I look at our side of the business, we're closing older facilities that have -- that are close to their end of their useful life. We're able to move that volume into more productive, more efficient facilities, which reduces our costs and optimizes our network. As I mentioned in the prepared remarks, the media has reported that there are other manufacturers that have curtailed lines or delayed previously announced new capacity. And I think the one thing to remember when it comes to these new lines, scaling a modern fry line, it's a pretty significant undertaking.

You already know it involves a lot of capital, like you just said, but you really need a reliable source of high-quality raw potatoes. And then there's some other various complexities that go into that. One that you may not think about is energy, and it takes a lot of energy to run these plants. And so that requires securing the right electricity and approvals to be able to operate it and so forth.

So as we think about our asset position, we feel really good about where we're at in North America and kind of the advantaged position that we're in and location that we're in. We have great assets in great locations, and we continue to evaluate that manufacturing footprint around the globe and make sure that we balance it with supply and demand. But like I said, it's about reducing our footprint in some of the older, higher-cost facilities and moving that into more efficient facilities that we recently built.

Got it. Okay. And Jan, helpful to get your comments just on overall strategy. I think maybe the one piece that we didn't hear about today is on the pause on the ERP program that was put in place 2 years ago, that was obviously kind of a core to modernizing the network and probably helping to simplify and improve things. Just where do we stand on that? Is there work being done around restarting that program that was paused? Is it something that Amit needs to come in and be a bit more versed before we make a decision? Just help us understand kind of where we stand at this point.

That's a good question as well. I think we brought Amit in. And of course, one of his priorities is strategy, another one is technology. And in technology, to your point, one of the reasons that we combined these 2 areas is that they go very well together, right? So I think on the technology front, there are some clear priorities put in place will have to do with data governance, indeed, the ERP approach, which is more like -- these days, more like a lean backbone. And then, of course, things like AI and cybersecurity are quite relevant in that context.

And as Amit gets on board, this is, for sure, one of the elements that he's looking at on how best to organize it. And suffice to say that this company has some learnings on how to do things and what kind of things to avoid, and we'll be sure to take that into account as we progress the agenda.

We'll take our next question from Tom Palmer with JPMorgan.

First off, I did want to follow up a little bit about North America. I think if we look back over time, there have been periods where maybe innovation, right, coated fries, products that you guys developed that didn't require fryers have been key drivers of winning customers. And I think there have been other times where maybe price is kind of the key determinant in terms of winning certain customers. I mean where do we stand in North America today kind of within that cycle?

And then I guess, as we think about the coming year and how you're thinking about price negotiations, maybe a little color in kind of how much that first part of that question guides your assumptions for the back half as you go through these negotiations.

Yes. Maybe, Tom, I'll take us back to what we're doing around Focus to Win because it has more to do with kind of the team and the execution rather than pricing or maybe what you're alluding to buying business. Really, over this last year, there's been kind of 3 pillars of that Focus to Win that have stuck out to me. One, we're building those customer partnerships. They're valuing the quality, the consistency, the service, the innovation that we deliver to them. And I think that's proven by the fact we have a strong NPS score with those customers.

The second piece is we've been really focused on the cost savings program, and we've identified some additional cost savings above that current program and that will allow us to offset some of that price mix. The last piece, as you mentioned, innovation is super important. It drives loyalty. It expands the market. And I think some perfect examples are those that we shared today. We're also seeing some renewed interest from customers around LTOs globally, and that's exciting to see as well.

And as you know, innovation has higher price points, which drives margin accretion. So we feel really good about the progress that we're making in North America, and you can see that in the results in Q4.

Tom, maybe I'd add that, so as we always think about, well, are there -- is the North America customer channel mix sort of what its posture towards pricing. What I've noticed is that if we have freight rate changes and there's freight pressure, that's almost a separate negotiation, and it can happen almost any time during the year. On some of our multiyear contracts, we have some variability elements that are tied to underlying cost inputs, maybe edible oil prices changing in the market. Some of our larger customers know that's an element of our cost.

And clearly, as we have a 2- or a 3-year contract, that pricing of that element is always going to be kind of dynamic and passing through. So while you asked the question a little bit like, well, this upcoming fall contracting for calendar 2027 with a lot of our foodservice customers is true. I would just say that our customers are also seeing the underlying cost inflation and that there are elements in how we price into the marketplace that are a bit more dynamic as we go through each year.

Great. And Jim, maybe I could just follow up on that inflation picture. How does it net out? It sounds like it may be a little bit different regionally. But kind of when we think about the 2 segments, inflation or deflation, I guess, when weighing potatoes versus all these other pieces that are more inflationary?

Yes. I think net, if you do take into the -- maybe an expectation of more of a decline in the potato cost in Europe, although let's see what that crop looks like right now given some of the heat. And then in the U.S., we're about 3% inflation. And so that means other than potato, our inflation is a little bit higher on our...

We'll take our next question from Max Gumport with BNP Paribas.

On North America, your outlook for sales and EBITDA would suggest margins could be relatively flat for North America in '27. I understand you've got modest price/mix investments combined with cost inflation, which are effectively offset by volume growth and some ongoing cost savings initiatives. But can you talk a bit more about how you're viewing the current segment margin level and whether you see any opportunity to build from here going forward?

Yes. Maybe let me touch on this just quickly. I think price/mix moderated in the back half of fiscal '26, like we had forecasted. I think as you think about fiscal '27, we expect modest price/mix investments. And a lot of that's going to be the result of decisions we made in last contracting season that will be carrying over into this calendar year. But at the end of the day, we're winning with customers and growing. And we expect some volume growth, like I said, some modest price mix investment, and we'll continue to execute against our cost savings program that you talked about to offset that inflation and some of the cost volatility.

Yes. Maybe on just what would be on the upper end of what we would see in North America. Clearly, if there is some continued inflation or unexpected inflation, maybe it's in edible oils, maybe it's in corrugated or poly bags or maybe it's in freight, we're going to have to be working with customers on pricing that through. So we'll be very agile in thinking about the timing of that. But we'll also look at what we can get favorable channel mix and we can get favorable product mix.

And what that means is within foodservice, do we generally see our foodservice operators relying on the attachment rates and relying on the value of French fries as part of the meal offering, whether that's part of a value meal or part of a broader serving to consumers, I think there is potential, at least within the U.S. economy in terms of where wage growth is and stuff that away-from-home eating, at least in terms of dollar spend is still going to be healthy for our customers. And so we very much look at that opportunity on the upside for North America.

Great. And then just a follow-up on CapEx. So you mentioned how -- obviously, on an accrual basis, CapEx is moving lower in '27. And you mentioned that going forward on an accrual basis, you anticipate investments of up to $350 million, but that's an upper end. Can you talk about whether you see any further opportunity to reduce CapEx even further as you go forward in time?

Yes. I think what we are using is not just thinking about our approach around zero-based doesn't just kind of stop with expenses. It also thinks about our capital investments. And the global team does an amazing job prioritizing opportunities. And so within that, to the extent that we're going to get leaner on some of the existing investments that are currently in our plan that adds up to that accrual of $350 million, if we can take $10 million or $20 million out of that number, we have a list.

And so #5 or #6 or #7 on that list may offer a high teens type of ROI and pretty quick payback, we're going to choose at that time whether or not to pursue that or if it feels like, hey, maybe some of the inflation on those types of capital projects is more expensive, then we might pause and deliver a lower accrual amount. But we definitely have a list and we would like to prioritize what we go after.

We'll take our next question from Scott Marks with Jefferies.

I wanted to just follow up on the North America conversation. Obviously, this past year was pretty solid from a volume perspective. And just wondering, as you think about going forward, how do you think about, number one, maintaining those gains, holding the share that you've picked up, but also as we look to fiscal '27, maybe talk about which channels or opportunities you see as the most realistic or the most priority for your team?

Yes. As I think about the business into the future here into '27, we feel really good about the work that we've done this past year. Like I mentioned, we've delivered some strong results. Our customer NPS scores have improved. We're delivering innovation to the team, and we're having our customers come to us asking for more innovation and talking about LTOs, which is all positive. Like I mentioned, we will be lapping some of the pricing decisions that we made in '26, that will have a little bit of a carryover into '27, but feel really good about our plan for '27 in that North America business.

And we encourage you to go try our olive oil innovation. It's quite tasty and it sells at a better price point.

Okay. Understood. And then just a quick follow-up on the CapEx conversation, just to piggyback off of what Max asked just a moment ago. As we think about this accrual rate of $350 million, obviously, that's a material step down from what the business was talking about just about a year, 1.5 years ago. I think it was a $450 million base target previously. So just wondering with that big of reduction, if I have that correct, how do you think about maintaining the status quo of the business, investing for growth, investing for efficiency with that much coming out of the base investments?

Yes. Scott, look, I think our reliability level is just staying in business on the plant, I believe it's less than $350 million. And so we still have dollars that we're putting into really optimizing. And so Sylvia and her team globally have ideas around each of the plants in terms of where we can actually make kind of major production line changes. And when we do that, one, we put in new equipment, which usually runs with better water usage, lower energy cost and maybe it even expands our capacity because we've debottled part of a particular production line.

And so we're just thinking about how we pace those investments as we go forward. And so I think there's still a substantial amount of budget left in the $350 million amount. I think we should always as a company because what management may present to the Board may say, "Hey, we have some really fantastic ideas that lead to payback, and we want to have a little agility on that number." But right now, for 2027, we're going to accrue to $350 million in new projects.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Ms. Hancock for any additional or closing remarks.

Thank you, and I want to thank everyone for joining us today. Just a reminder that the replay of the call will be available on our website later this afternoon. Have a great day.

That will conclude today's call. We appreciate your participation.

The conference this year for the first time. Lamb Weston, a leading supplier of frozen potato products to restaurants and retailers globally, is nearing the 1-year anniversary of beginning to execute against a redefined strategy under new leadership with a sharper focus on customers and returns.

CFO, Jim Gray, joined the company just over a month ago, bringing his financial discipline and focus on driving sustained profitable growth to enhance Lamb Weston's execution against its strategy. We're pleased to have Jim here to share his initial thoughts since joining Lamb Weston and discuss this company's strategic priorities. Thanks for being here.

Glad to be here. This is one of the first conferences we've done in a long, long time. So actually, really, really appreciate the invite.

Well, we're thrilled that it's here at Farm to Market. Maybe where I would start is just having just joined Lamb Weston, what attracted you to the company? We'll start there.

Well, I think, one, when you look at Lamb and the amazing franchise and the history it's had since the spin from Conagra, I always thought that like there's just got to be inherent value in the company and kind of started doing my homework.

And then maybe other than Soda Pop and energy drinks, the ability for the value creation along the entire supply chain, right, from the consumer, what is the foodservice operator, what does the retailer make? What does the processor make and what does the farmer make? It's just one of those rare supply chains, which offers enormous economic return to kind of all participants. And so that is always, I think, bodes well for when you look at an industry in terms of being able to support top line innovation, et cetera.

And then maybe I'm a bit of a contrarian, but I actually love having kind of a CEO in his first year and felt that I can offer some, hopefully, constructive counsel. And I kind of like a Board that's kind of having fun. So I'm not one to shy away from some of the maybe the challenges and stresses in that. And so I figure like what I probably can be a calming voice and probably added quite a bit of value to kind of this leadership team.

So when you think about that setup and coming into the role, how do you -- what do you expect to be able to leverage from your prior experience as you come in and kind of add to what's already going on with the company?

Well and maybe the one piece that was surprising is just how similar the value chains are, right? And so Mother Nature gives us something every year that grows, and there's variability in that. And then we run it through a conversion process and there's efficiencies in the scale and cost minding that's important.

And we come out with a product that needs to be marketed and sold and nurtured to a customer franchise in a way where there's actually quite a bit of value creation in the choices that our customers make and then ultimately to the consumer and the consumer eating experience and how much value add is there.

So in some ways, whether it's food and beverage or its ingredients or very similar value chain. And so one of the pieces that I see is like I think it is always important in delivering consistent profit earnings is how do you reduce the volatility in any step along the way. And so there's a number of different lessons learned in my prior history, and I think some of those can apply absolutely to this company in this industry.

So you mentioned the surprise about the supply chain. Any other kind of initial thoughts, first month in or surprises that are worth mentioning?

I mean I think that the -- first of all, the team and kind of our ability to kind of get at data is outstanding. And you kind of hear ERP change and oh, maybe we fumbled on that implementation. But the fact is, is that the systems data is actually quite good, surprisingly good. There's a remarkable amount of detail there.

And so in this day and age, setting up with good data, and then being able to like say, okay, where am I at in my process? Where am I at on my AI journey, like that's always one of the first things you want to check or otherwise, that's 2 or 3 years of work. So I think that's probably one piece that I'm kind of positively surprised about.

Great. Walk me through the immersion plan, your areas of focus over the next 3, 6, 12 months, how you're thinking about your priorities?

Yes. Well, I think first is being able to recognize we're at the end of our fiscal quarter, so we end kind of May 31. So setting up for next year's AOP plan, thinking about, hey, how are we going to finish this year relative to the various financial metrics? And then what are we setting out there for guidance.

So again, right now, it's the busy time of the year for my team and myself with the Board and being able to just be able to say this is the kind of the line of the ball, and this is the game we're playing, and this is where we're heading for '27. So I think that's first and foremost.

Second is Debbie Hancock and I have been working a lot with shareholders to understand kind of where is the voice of shareholders right now so that we are coalescing all the input and being able to develop a game plan against that. And then just actually knowing the business and knowing my team.

And so that's been a little bit busy for them because we've been actually just jumping straight in and doing. But hopefully, we'll get more time to actually know the team as well.

Great.

We go forward.

We've known each other for a while, but maybe for investors that don't have the history with you, how do you think about the key drivers of long-term value creation?

Yes. Wow, that's a great question, fully loaded. So first, as someone who always encourages building business, you have to make sure that your leader and your commercial team and your operations team understanding that they are all playing together to drive operating income growth, right? And so that can start with top line, that can start with an efficiency model in terms of the business. But you have to have the front part of the team driving operating income growth. And I mean fully measured, including depreciation and all the costs.

Then you work with the finance team on making sure that your fiscal policy is impacting smartly all the way down to adjusted EPS. And then set, I think, a course forward on what you think adjusted EPS growth can be. And then probably the last piece of that is just always making sure that the capital investment is very disciplined such that when you pull up and you actually measure ROIC that you're actually not just driving a better ROIC, you're actually thinking about how am I actually improving the ROIC or how am I actually indirectly creating EVA and growing EVA.

But there's only so much that I think an organization can understand, but the parts for us are get the operators focused on driving op income growth, be smart on your fiscal policy and driving adjusted EPS and maybe dividend or total TSR, but then be thoughtful about capital, capital turns on ROIC.

Great. Shifting gears a little bit, maybe zooming out. Can you give us a sense for the structure of your customer base, your mix across channels, kind of the nuts and bolts of what the business mix looks like?

Yes. Well, we did change segments a couple of years ago. And so we actually report on North America and international. But prior to that, it was some characterization of our customer base. And so we're probably about 80-plus, 85% foodservice in kind of all elements. So full on the biggest global chains, regional chains and then through distributors, all of the independent restaurant operators out there.

And then we also have a fairly large retail business. I think we're #1 in terms of sourcing of product within the U.S. So we have some brands, but we also do private label. So we actually get to play in grocery and club and mass on both dimensions. So we don't really feel like the headwinds on the grocery basket, if it's against branded because we're also kind of a big supplier in terms of private label.

On the branded side, we have -- we've done that through licensing of some restaurant brands. And so some restaurant franchises have a very unique kind of identifying fry or chip that they make, and we branded some of those have been actually quite successful. In fact, like -- I like -- the Checkers brand is out there. And I'd like to say that the Checkers brand is the leading retail brand in the Pac Northwest. And if any of you know Checkers, they don't have outlets in the Pac Northwest.

So that's sort of interesting, right? So 35 days in, I got to step back and think about, okay, what's the power of what we're actually doing in the product and the product quality. So I think there's some fun opportunities there as well.

Interesting. Okay. In terms of the crop cycles, your sourcing, your pricing, how does that all work together?

Yes. So I think the crop cycle in potato is super -- like it's super interesting in that. And it's actually surprising the maturity and the sophistication. And so maybe I'll talk just about the Pac Northwest or North America.

So potatoes need to grow in a very loamy soil, sandy soil. So we have a lot of volcanic soil that's all the way from the Yellowstone Basin, follow of the Snake River and then through the Columbia River Basin, an amazing spot to grow potatoes. So just enough moisture during the planting, which is kind of now, like, well maybe a month ago, so kind of Feb -- really not Feb is too early, a little too cold. So probably more March, April. And then we're going to harvest anywhere between September and October, okay?

But understand, so all of the farmers are amazingly sophisticated. So we have irrigation, automatic fertilization, so super efficient on the fertilization, constantly monitoring both the crop health such that we can almost time exactly when we need the pull up, and we'll direct that. So our ag team actually works with our partner farmers to actually say, okay, we're ready to go right now, and we like the size of your potato and we want to halt that starch growing and starch degradation into sugar. So it's remarkably precise when we're pulling up.

And so why does that matter, right? And it's super subtle, but it's kind of interesting, right? So a potato plant is going to grow 8 to 10 potatoes, okay? Well, the ones that started early, the good old Idaho potatoes, they turn out to be like that big, okay? And that's what makes those big beautiful french fries, right? But you also get 4 or 5 potatoes that are going to be that big and you get 1 or 2 that are that big. So we're buying the whole crop, okay?

So then when we go and process them, we got to make sure that the super big ones get cut a certain way. So those are the premium and we can sell those for more value. And the medium ones, we might make wedges, right, or something smaller and the very small ones and all the chips, we might make [ tater tots ]. So we use the whole crop. We use however the potato shows up and we use all of the harvest.

And if you do that efficiently and you get a great quality crop, you're going to get a lot of margin value add, which is kind of why when you look at our North America segment and you see the profitability there, part of that is because we have the scale in the Columbia River Basin. We have very precise farming, and we actually know how to take that crop and maximize the value out of it.

Interesting.

Yes.

I know I started with this in my intro, but it's been almost a year now since the company began executing against the Focus to Win strategy. So coming in with some fresh eyes, how has the execution against that strategy gone so far? Are there areas where you guys are ahead of schedule, behind pace? How would you frame that?

Yes. I think within Focus to Win, first is looking at, okay, well, which markets do you play in? And are you prioritizing those markets? And so I think probably within our international business, we're still actually kind of assessing that and some work is underway.

But one of the big tenets was [indiscernible] so focus on the right customers, so winning with the winning customers and make sure that we've gone back and repaired any damage that we had to customer relationships. And that journey probably started more than 1.5 years ago. And we've been, I think, demonstrated quite a bit of success, right?

And so how do you say that where you say, well, Jim, I mean, volume is up in North America, probably in a market where we've gained some share. And maybe if you said restaurant foot traffic is down a digit, down 2%, maybe. I mean it sort of recovered in Q1 a little bit, but the stack year-over-year-over-year probably still says QSR traffic is down.

And it's demonstrated because we're rolling over multiyear contracts, and we're doing that with expanded volume on top of great service and I would say, with pricing that is fair and adjusted from the peaks following the kind of 2022, 2023 inflation everywhere, pricing was quite easy. And so probably overpriced a bit. And so those contracts now are rolling over. We have nice contract pricing maturation, I think, which is playing out in the business. And so that's a good demonstrated achievement with some of the toughest multinational customers around.

And then I think the second big part is we really wanted to focus on operational excellence and cost savings. And the team has really jumped on both SG&A as well as COGS savings in -- we have advertised out there a $250 million run rate savings by fiscal '28. We put $100 million in front of ourselves this fiscal year, fiscal '26, which ends in May. We're well ahead of that.

On our earnings call, we'll catch everybody up with where we're at. But we've been able to do it through kind of all the normal elements that you would think of within manufacturing optimization. So not just procurement, not just closing 1 or 2 factories, actually, the really hard work, driving OEE, driving efficiencies, driving yields. And because we have the data, we can be super focused on where we want to do that and where we want to do that well.

So I want to talk about that in one second. But in terms of strengthening the customer relationships, I guess, what have you found to be most -- what moves the needle the most in those discussions? You guys have also talked a little bit about price and trade support. Kind of how should we think about the duration of that and how that plays out? We'd love to hear about that.

Yes. So I think, one, in terms of the -- being able to look at the customer relationships, I mean, especially in some of the most global and the largest franchises is that it is a multi-decade partnership, right? This is -- even though we may contract in 3-year or 2-year cycles, we are absolutely in this to protect the availability and the service to each and every one of our restaurant operators.

And so when they're making a choice in terms of what they want to serve daily and if that french fry is a complement, maybe even it's kind of symbolic of the franchise and how they add value, you got a service level and you got a quality level that you have to hit all the time. And believe it or not, I mean, we get audited and the quality specs are pretty stringent in terms of what shows up in a bag.

So I just -- I'll give you one example. So if you think about a curly fry and you think, oh, okay, well, yes, I've had a curly fry, right? Well, how many curls are in the fry, right? 2, 3, 4, right? You get one of those ones that comes out, it's big, it's not really, like, wow, okay. So then you also address those. So that's good, right? But you also get a loop and you also get a half moon.

Well, if you put too many loops and too many half moons in a bag, your operators get upset. Why? They get upset because when they want to serve curly fry next to a big stacked hamburger, they want the volume and the 3D dimension of the fries to stand up on the plate. They want it to look like it's a voluminous serving. That conveys value add. That impresses the consumer at the eating occasion.

By the way, you're actually also serving less ounces because they curl and they form, right? And so you actually have less weight going out on the plate, you're actually getting more value conveyed to the consumer. They're offering that in their meal, and that allows us to actually charge up on price.

So delivering quality, that doesn't work if you get a whole bunch of moons and half circles. If you get loops and circles your plate is flat, that's bad, right? So quality and the size of that massive potato that you need to cut so that it spins around and you get that loop, that's what we monitor. So the quality from the customer and the franchise is actually really, really important to conveying value to the consumer. As somebody who really enjoys french fries, this resonates with me.

So I appreciate that.

I don't know, Andrew, you might be a volume guy.

I'm just saying, generally speaking, yes. In terms of the operational improvements, what -- can you walk through some of the changes that have happened? You talked about some of the metrics, but how have you achieved that?

I think whenever I sort of look at an operations group, and I think about really 3 things. So one, what are the people and both the leadership at the plants, but also just your folks on the front line, how are your day-to-day operators working within a culture? Two, what are the routines, right? And then three, what's the capital that's there, right?

And those 3 things are coming together, you're going to be spending capital extremely efficiently, and you're going to be surprised by both the culture and the routine coming together to drive whatever leading indicator you want coming out of your manufacturing.

And just I think under Sylvia's leadership, who's our Global Supply Chain Officer, she's been in place about 2 years. She's got her team in place, and she's really instilled this culture down. So it's not just that we see procurement savings. We have a wonderful procurement officer. We've done a lot of work with our top 10 suppliers. So we have seen rate savings. But more importantly, what we're seeing is within the network, the plants that we really want to run well, we're running them with the right schedule, with the right type of product quality, and we're seeing it come out the back end in terms of usage rates, lower utility rates, lower water, lower labor costs, et cetera. And so that's actually been probably the biggest single driver of the amount of cost savings that we have showing up in the P&L.

Great. How does innovation fit into the picture here? How does that fit into the strategy? Where are the opportunities? Maybe how do you go about bringing that to market? If you could talk through that, please.

I mean I get excited, and you know that I kind of love the details and kind of where the price and where the value is. I think if I could channel Mike Smith, our CEO, for a minute, and that the ability to do a frozen french fry product is not available in every restaurant operator, okay? So there's quite a few restaurant units out there that don't have a freezer and maybe don't have a fryer, right?

And so to the extent that we can think about, well, can we take a product that's baked, right, and be able to just extend our penetration into restaurant units that don't have those assets in their infrastructure, and we can actually make it simple for the back of the kitchen to actually create the product. So there's things that we can do with cut, with coating, with texture, how we actually par fry and then how we freeze and store and ship such that I think that, that's kind of market expansive.

And then within that, again, we talked a little bit about curly fries, but the amount of different cuts that we can do and how we proportion control exactly for the franchise operator, I think, is an innovation battle that we should always be running every single day.

And then just kind of as a platform, I think there's a lot of LTOs and there's experimentation on flavoring and on coating. You can get super texture crunchy, you can go crazy on flavors. And we have kind of all the ability to do that. And so that is kind of a common discussion. The question is how much does a restaurant operator want to use that as a way to kind of excite, freshen up their menu value for a period of time.

Got it. Okay. Just broadly on the demand environment with gas prices higher, stretched consumers, how are -- how have you seen demand evolve? How are customers maybe approaching this environment today?

Yes. Well, I think that all of the -- I think all of our restaurant partners are kind of fighting a little bit for traffic, and they're also super sensitive to the value to the consumer, right, whether you talk about K economy and necessarily -- I mean, we do focus quite a bit on QSRs. And I'd say both kind of QSRs as well as maybe that kind of next level up in terms of not quite fast casual, but the higher end.

And they're all concerned about how much are they conveying in terms of value to the consumer. So the thing that I don't see that changes the kind of the megatrend, which is I still think away from home and the eating occasion away from home or out socially is still a positive trend, right?

And whether or not you come out of COVID or you look at Gen Z, the ability to be able to say, "Hey, I'm going to enjoy the occasion together and meals may be part of that." Alcohol may be less part of that, but the meal and definitely, I think french fry is -- it can be part of that. And so that megatrend of away-from-home eating, I think, still exists and actually is probably even more apparent in some of the developing countries that we're in.

On the international business, can you kind of walk through the composition of the international business as it stands today and how we should think about that evolving over the next number of years? I mean, I think about markets that are in very different stages, right? So how do you see that evolving?

Yes. Well, I mean, if you follow our own Lamb, I mean, the International segment's results this year have been super tough. Not good. Obviously, we need to do better. I think when we peel the onion on international, though, I'd characterize as kind of 2 markets where we've invested a bunch of money and are actually in pretty good growth opportunities. So one, we've added a second plant in China, and we have a brand-new plant down in Argentina serving kind of the Mercosur Brazil market.

Both are in the early stages of their ramp-up. And so just naturally, as we're going to go into the next year or the third year of that ramp-up, we're going to see kind of incremental volume that will absorb fixed costs. And so that's pretty typical of a food manufacturer where we'll kind of invest in an asset and hopefully, we can get it ramped within 2, if not 3 years.

EMEA, which is really served by our European manufacturing base and U.K. base, that competitive market, I think, is in a different world of hurt. And candidly, a lot of the European industry probably was manufacturing to domestic demand, probably, call it, 60%, 70%, maybe as high as 80%. But export volume out of Europe to other parts of the world was a solid 20%, 25% of the capacity. And that has been met with kind of localization post-COVID. So you got India manufacturers, you've got some China manufacturers. And they can both serve both China, they can serve Southeast Asia. They can serve India and then India can get to the Middle East.

So now you have Europe, which traditionally had sourced product into those very, very big population areas, and now it's facing that headwind. So that industry, we're going to have to rationalize some capacity at some point.

I want to ask about that in one second.

Okay.

You mentioned some of the softer performance in the international side. Some of that is the market. I'm wondering internally, what can you do to improve performance there? Is there anything kind of outside of the broader market trends that the company is doing?

Yes. I think when you always step back and you have to think about, okay, so I have -- my demand has slowed, I have excess capacity. It -- first is a timing question, okay? So is this going to be something that lasts for 3 months, 6 months, 12 months, 18 months? How much can I endure, right?

And you may curtail. If you have multiple plants, you can curtail a plant, you can furlough it, shut it down temporarily. This is a business that you can actually take out capacity and actually save some money and protect the P&L. And we have done that. We've curtailed one plant.

If the timing is such that you think it's going to be longer, then at any point in time, you kind of have to look at 4 or 5 or 6 plants and you got to be able to say, okay, I got to rationalize. Now the key to doing that, though, is not so much identifying which plant. It's making sure that you've actually had conversations with customers about retaining the volume that's sourced from that plant that you would consider shuttering and making sure that you can get the vast majority of that volume back in your other plants.

And if you can do that, then usually sometimes the economics sort of work out and you're actually better positioned for the future because you've concentrated volume, you're getting better asset utilization, your ROIC is up, your future capital investment required has gone down and you're actually getting a better return.

The key, key, key though to that is that if you do that, you need to signal to competitors like let me go through this change, don't attack my customer base so that I can manage the sourcing. And what that does is it allows the other competitors to realize that they can do the same. And if I think if you can get a few of those dominoes to fall, you can get some industry capacity rationalization, right? Now if they decide to attack, then you're going to attack, right?

And so just generally, that's -- when you have as many plants as you have in Europe and you've got it spread across multiple competitors, you just need some thoughtful step-by-step planned rationalization at some point.

So there was the one plant closure. You talked about the curtailments. Have you seen similar actions across the competitive set? Or are we still very early in that -- in what you just described?

Yes. I think we're still in the first phase of the timing. So people are going, well, like is this conflict/war in Iran, how quickly might that end? Does it take 3 months, 4 months, 6 months for Brent oil price to return to some normal? I mean that's still a huge uncertainty that's hanging over the balance of this year.

And so I think the competition is probably just delaying. They're definitely delaying any capacity expansion. They'll probably choose to do what we've done, which is also like just curtail production. And we'll see necessarily kind of where the fulcrum is in terms of a long-term vision.

So I have a question here on the asset footprint globally. You kind of touched on it. Do you -- is that the scale of rationalization that you think is required when you look at the footprint? You can maybe frame that.

Well, I mean, I think that we're in the midst of sort of thinking about what is the absolute international footprint. And what are the flows that naturally go in between. But I mean, the more important question is, okay, so you're close to a wonderful biome where you grow potatoes. You don't want to ship potatoes because there are a lot of water and they're heavy and they bruise, right? So -- and you can't really move them a long ways because eventually, the starch starts to degrade into sugars and actually that impacts the quality of the french fry.

So your manufacturing is generally close to where your potatoes are growing. And so now what you want to do is say, like, so coming out of my factory in a frozen supply chain, what markets can I get into? And so markets are always driven by where people live and exist, right? And so we want to make sure that as we're always looking through that lens is what's our right to win, right?

And whether we do that ourselves with our own assets, whether we do it through strategic partnerships, maybe we do it with go-to-market help upfront. I think that's sort of the thinking that we're looking at right now before we just pull back and just say like, oh, okay, well, we have a cost problem, let's solve our cost problem. We really want to solve the strategic answer first and then know that we're setting ourselves up to move the needle in international as we go forward.

Okay. In terms of the geopolitical environment, high gas prices, higher fertilizer prices, maybe supply issues. Are there implications for your business? Obviously, restaurant traffic, I think, is a given. But just internally, as you think about executing against the strategy, how do you think about maybe potential implications from that?

Yes. Well, if there's one supply chain that can actually tolerate some inflation over time, this is probably it. And yet, obviously, you're always going to be transparent with customers around the types of cost inflation that we're getting hit with. I think probably most directly would probably be oil into our packaging, right? And so our packaging costs, while not a big portion of our COGS, I mean, but significant enough.

And so -- and typically, packaging is kind of on an index basis. And so we'll get that cost pass through to us. And packaging is a tough one because you can't always just immediately directly go to a customer and say, "Hey, I got to go take up your pricing because of my packaging cost inflation." They understand diesel prices. They understand freight costs much more.

And so we work with customers in terms of -- because we have 3 or 4 different types of contracting methods and kind of when they hit and when they allow us to take pricing. And so we'll be obviously actively having that. I think maybe the exposure is just a little bit of lag in terms of input cost inflation hit the P&L, but then having the confidence that you're going to get it back as you go forward.

I wanted to ask about the capital plan if capacity expansions are not a focus anymore as they were under the kind of the prior strategy and potentially pivoting to debt paydown, cash returns to shareholders, over time. How do you think about capital allocation philosophically for this business? I know it's early, obviously, but just general thoughts.

Yes. Well, never want to not have a hypothesis. So first, again, if I went back to generating the operating income and being smart about that growth, that translates into, okay, go generate good cash from operations, right, consistent at a high level, try and manage the net investment in working capital. Hopefully, that's maybe a negative even. So you're starting off with a really healthy kind of cash from operations.

I think for our business, when we think about reliability capital investment, right now, we're probably thinking between $350 million and $400 million for next year. We're not quite decided on that, still have to talk to the Board. But then that leaves maybe about $200 million for our dividend. And so we'll have strategic cash to deploy as we think about next year.

And then -- so we have 4 choices. So organic growth, probably not needed right now. M&A, probably also not needed. And then share repurchase and/or kind of debt reduction. And again, haven't really made a recommendation to the Board, but I would probably lean a little bit more towards debt reduction. Right now, I think we run about 3.5x debt to EBITDA. And we'd like to see kind of maybe a little bit more stability on the balance sheet, maybe getting us below 3.3x debt to EBITDA.

Although, again, I need to make sure I'm aligned with Mike and the Board on, hey, what those preferences are. We have purchased back shares too because of -- I always think about buying back shares opportunistically. We run an intrinsic value on the company. And so we'll see where those are at. But hopefully, if we focus on cash from operations, and that's a healthy number, then we're left with difficult choices on strategic cash deployment.

Good problem to have, certainly. We only have a couple of minutes left. Is there any message that you want to kind of leave the audience with on the way out?

Yes. I just think that one in that -- look, Lamb and our team have had a lot of input from a lot of folks. We've had some Board changes. Always welcome feedback, diversity of thought from shareholders is actually welcome.

Management team is going to coalesce and we're very much with Jan Craps, our Executive Chair and with Mike Smith. We're very much focused on how do we get to a sustainable algorithm, a sustainable business model in this and what we think the financial performance of Lamb can be in the next 1, 2, 3 years and very much excited about helping to build that. Pretty confident that we can get there. And hopefully, that's a bit of a turnaround from kind of what we've demonstrated in '26.

Great. Yes. We'll leave it there. Thank you very much for being here.

Thanks for being here.

Good day, and welcome to the Lamb Weston Third Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's Third Quarter Fiscal 2026 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties.

Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release and the appendix to our presentation.

Joining me today are Mike Smith, our President and CEO; and Bernadette Madarieta, our Chief Financial Officer. Mike and Bernadette will provide prepared remarks, and then we will be available to take your questions.

Let me now turn the call over to Mike.

Thank you, Debbie. Good morning, and thank you for joining us today. I want to start by thanking the Lamb Weston team around the world for their hard work in what continues to be a dynamic market. Their expertise, disciplined execution and willingness to embrace change and act with urgency have been instrumental in the progress we are making.

In the third quarter, we delivered another solid performance. the fifth quarter in a row of in line or better results, demonstrating that we continue to do what we said we would do. This strength supports our updated fiscal 2026 outlook including a tighter guidance range and a higher midpoint of net sales and EBITDA. This was led by ongoing momentum and a strong sales performance in our North America business, where customer wins, share gains and strong retention delivered 12% volume growth and 5% net sales growth in the segment.

Over the past year, we have made considerable progress in this business across our operations and most importantly, with our customers. This has enabled us to grow while restaurant traffic and consumer sentiment have been soft. Overall, QSR traffic was up 1% in the third quarter. Bernadette will speak to this in more detail.

In North America, our focus this year was on strengthening our customer partnerships and consistently executing. We finished our customer contracting season with a higher retention rate and solid new customer acquisition.

At our production facilities, we've delivered improvement in our run rates and core operational KPIs. We are generating cost savings ahead of plan across our business, and our employee engagement scores have improved significantly. Our international business, as expected, was challenged by an evolving market environment resulting from a significant surplus in the European potato market due to expanded potato acreage in a robust crop of potatoes during the last growing season.

Local sourcing in developing regions such as Middle East, China and India, which is affecting exports from Europe to those markets and persistently lower restaurant traffic in key countries. We are taking decisive actions to manage our business in the near term and protect profitability.

During the third quarter, we announced the closure of our Monro Argentina plant, and consolidated production from the Latin America region and our new modern MartePlatt Argentina facility. As we've previously announced, we began temporarily curtailing our production line in the Netherlands at the beginning of the fourth quarter.

Further, the company doesn't plan to resume production in 1 of its previously curtailed Australia locations. While we believe the competitive backdrop in certain international markets may result in less capacity expansion than was anticipated, we are focused on controlling what we can control, acting with urgency across the company and being disciplined in our capital investments.

It has been a year since I joined you for my first earnings call as CEO. Over that time, we have taken significant actions to improve our performance. We developed and in July, began executing our Focus to Win strategy to drive targeted decision-making and actions. This strategy is a departure from Lamb Weston's previous focus on growth and scale.

Instead, we are taking a more thoughtful approach to where we are geographically and from a capability perspective, positioned to win long term, including where our customer proposition is strongest and making sure any investments we make are evaluated through this customer and return-centric framework.

As we near a year working with this paradigm, the changes are significant and inform our decision-making and how we compete for business on a daily basis. As part of these efforts, we set a target of $250 million in cost savings by fiscal year-end 2028. Our first goal was to achieve $100 million in savings in fiscal 2026. As of the end of third quarter, we have already delivered on those full year savings and are tracking ahead of our program target. These savings have afforded us the opportunity to make selective investments in support of our customers.

We believe these targeted reinvestments have been the right long-term choice for our business and have been particularly powerful as they are paired with the improvements we have made in execution to deliver higher consistency and quality for customers and our continued commitment to product innovation.

Altogether, these have combined to drive substantial improvement in our positioning with customers, which is reflected both in strengthened retention and new customer acquisition. But to be clear, the actions we have taken and will continue to take on cost and capital deployment opportunities are structural. As we move forward, we believe they make us a more competitive organization while also positioning us for improved operating leverage and a more favorable price/mix environment.

We are also evaluating additional opportunities for improvement in savings across the organization, the details of which we will share in the future. Perhaps most importantly, we believe we are just getting started. Our new Executive Chair, Jan Craps, brings extensive experience and an intense focus on operating execution from his time at ABN Bev. Jan is highly focused on helping us evaluate opportunities to improve in international markets, whereas experience in a leading global company is providing valuable perspective on how to navigate a dynamic environment.

We will also soon welcome Jim Gray, our incoming CFO, who will bring an additional fresh perspective to our work. We also have a refreshed Board with 7 new members since July with expertise in food, consumer goods, agriculture, supply chain and finance. This group is focused on improving performance driving better returns on capital and driving long-term shareholder value creation.

As I have said before, business turnarounds are not linear, but 9 months into focus to win, we are making clear progress against our key business objectives. We have significantly improved our position with customers. We are improving our North America operations and are controlling the controllables internationally in a dynamic market, while we work to deliver on the cornerstone of our strategy, prioritizing markets and channels.

With that, let me get to some specifics to illustrate the progress we are making. First, strengthening customer partnerships is central to executing our strategy. We've made meaningful progress in deepening and strengthening our relationships with customers this past year. As part of the analysis we did last year, we evaluated and streamlined our U.S. commercial go-to-market strategy and structure.

Importantly, our direct sales team has positively impacted our selling on the street, including execution of pricing and working through challenges directly with customers. This is a key market differentiator and a core component of our customer partnership model.

Our team is 100% focused on fries and the attractive financial role that they serve our customers. We have also augmented our direct team with a broker model in key channels where we saw this to be the most efficient way to immediately accelerate our near-term competitiveness.

Second, in our achieving executional excellence pillar, we are focused on continuing to build an agile and best-in-class supply chain that allows us to operate efficiently and consistently while balancing supply and demand. This includes curtailing production when needed, closing production facilities that don't meet our customer and efficiency standards and restarting production seamlessly as we did in North America.

Finally, within our efforts to set the pace for innovation, I want to highlight Grown in Idaho brand. We invested in a landmark category study, highlighting how consumers think, feel and shop for frozen potatoes. This work led to a reinforcement of the Grown in Idaho brand essence. As a result, we are launching a new brand positioning that is rooted in real and created for people who value where their food comes from.

Shortly, you'll begin to see this brand show up on shelf with new packaging and a new clear message tied to made with real Idaho potato.

Moving to Slide 8. As you know, over the past several months, we were engaged in contract negotiations for the 2026 potato crop. In North America, contract negotiations are nearly complete. Overall, we expect a low to mid-single-digit percent decline in raw potato price in the aggregate and have largely secured the targeted number of acres across our primary growing regions.

Planting is on schedule for the early potato varieties, and we expect planting for the main harvest to be completed by the end of April. In Europe, fixed-price contract negotiations for 2026 crop are underway and progressing as planned. Based on our current indications, overall pricing is pointing toward a mid-teen percent decline in our contracted agreements from 2025.

Fixed-price contract planning across the European growing regions will continue through the end of April. We will provide our customary update on the outlook for the North American and European potato crops when we report fourth quarter earnings in July. In addition, we do not currently anticipate a material impact from recent fuel and fertilizer inflation to impact our fiscal 2026.

In closing, our focused win strategy is taking hold. Our focus is solidly on our customers as we strive to strengthen our partnerships around the world. It is on executing exceptionally well and delivering on our cost savings work. We are identifying and driving opportunities created from heightened accountability around our goals and by building a culture of continuous improvement in cost and capital management, agility and improving our capital efficiency.

I will now turn the call over to Bernadette to review the quarter and our outlook.

Thank you, Mike, and good morning, everyone. I'm starting on Slide 11. Third quarter net sales increased 3%, including a $47 million benefit from foreign currency translation.

On a constant currency basis, net sales were essentially flat with last year. Volume increased 7%, led by solid execution in North America, including customer wins, share gains and strong retention. This more than offset softer demand in key markets in our International segment. Price/mix declined 7% at constant currency, reflecting the targeted investments in our customers for price and trade support that Mike mentioned earlier.

Adverse product mix as consumers shift towards value-oriented channels and brands and chain restaurants, which typically carry lower prices and softer industry demand in key international markets as well as increased competitive export dynamics, which most notably affected our EMEA business. Let me provide context on what we are seeing in traffic trends. In the U.S. QSR traffic turned positive for the first time since late fiscal 2024, up 1% for the quarter.

QSR burger traffic grew in February, although it was down 1% for the full quarter. QSR chicken remained a bright spot with continued growth. Internationally, most markets saw low single-digit declines in restaurant traffic. In the U.K., our largest international market, QSR traffic declined approximately 1%, showing improvement versus recent quarters.

Looking at our segments. North America net sales increased 5%. Volume increased 12%, driven by recent customer contract wins, share gains and strong retention across our customer base as well as the relatively lower volume comparisons this quarter last year.

Price/mix declined 7%, with roughly half of the decline coming from price and trade support. The remaining half reflects mix as growth with both new and legacy chain customers continues and as consumers shift from branded to private label products. In our International segment, net sales declined 1%. The including a $44 million benefit from foreign currency.

At constant currency, net sales declined 9%. Volume declined 2%, primarily due to softer demand in key markets and a more challenging comparison. Last year, third quarter volume grew 12%. And Outside of EMEA, volume grew in China and Latin America and year-to-date volume is up across every region outside of EMEA.

Price/mix declined 7% at constant currency, reflecting price and trade support for customers and unfavorable geographic and customer mix as lower-priced regions and customers are growing. We also expect some impact from the conflict in the Middle East and excess international capacity remains a factor. We'll continue managing these dynamics with a disciplined approach.

On Slide 12, adjusted EBITDA declined $101 million compared to last year, to $272 million. Adjusted gross profit declined $93 million. The primary drivers were unfavorable price/mix, a $33 million net pretax charge to write off excess raw potatoes in the International segment due to lower-than-planned sales and a stronger-than-expected crop yield and higher fixed factory absorption costs in Europe and Latin America as underutilized production facilities carried higher costs.

And finally, a year-over-year headwind. Last year, we realized the benefit of processing directly from the field in the third quarter. This quarter, given lower inventory levels, we realized the benefit beginning in the second quarter, which created a tougher comparison against last year's unusually strong third quarter gross margin. These headwinds were partially offset by higher sales volumes. Benefits from our cost savings initiatives and improved operating efficiencies in North America.

Input costs, excluding raw potato prices increased year-over-year, driven by tariffs edible oils, notably canola oil as well as increased fuel power and water, labor and transportation costs.

As Mike mentioned, we expect potato input cost to decline in the upcoming crop year. Most of our tariff exposure relates to imported palm oil. Recent trade agreements eliminated that tariff, which is a positive development for our cost structure going forward.

We will see some tariff expense in the fourth quarter as we sell through existing inventory that was purchased before the change. In the third quarter, we recognized approximately $4 million of tariff expenses. And unless the agreements change, we don't expect to incur this cost after the fourth quarter.

Turning to SG&A. Adjusted SG&A increased $9 million versus last year. The cost savings we delivered in the quarter were more than offset by normalized compensation and benefit accruals tied to performance achievements, along with the write-off of $13 million of capitalized costs from projects no longer under development.

To help show these dynamics and the underlying drivers of SG&A performance, turn to Slide 13, which outlines SG&A trends and the actions underway. In the last year, we reviewed our SG&A efficiency, including input from outside advisers. Building on that work, we developed targeted action plans to reduce SG&A through our cost savings program that will continue to drive improvement over time.

As a reminder, adjusted SG&A includes several strategic items. Revenue-linked advertising and promotion, royalties from growing our retail business, miscellaneous income and expense items such as asset write-downs and noncash depreciation and amortization.

Revenue-linked expenses have remained relatively flat as a percent of sales, while amortization has increased as we've implemented new cloud-based and ERP platforms. Adjusted SG&A as a percentage of sales peaked in fiscal 2023, driven largely by the European joint venture consolidation and ERP implementation costs that were incurred ahead of go live.

On a normalized basis, excluding amortization, asset impairments and normalizing incentives at 1x payout, fiscal 2023, SG&A as a percentage of sales was 8.5%. Since then, we have taken action to streamline our cost structure. SG&A now stands at 7.8%, a 70 basis point improvement versus fiscal 2023 and about 70 basis points above the 7.1% level we saw in fiscal 2019 before COVID and our major global expansions.

The increase relative to 2019 primarily reflects investments to enhance our IT capabilities. While we've made meaningful SG&A progress, we continue to identify and execute against additional SG&A efficiency opportunities within the framework of our cost savings program. We will provide an update on our plans and progress as we proceed.

Turning to segment EBITDA on Slide 14. In the North America segment, adjusted EBITDA declined 4% or $13 million to $290 million. This was fully driven by customer price trade support and mix. While the underlying fundamentals of the business, volume growth, lower manufacturing cost per pound and lower segment SG&A partially offset the increase in price/mix.

In our International segment, adjusted EBITDA declined $76 million to $19 million, primarily reflecting lower sales namely in Europe, where restaurant traffic and softer exports from excess industry capacity remains challenging. Higher manufacturing costs per pound including the $33 million net pretax charge to write off excess raw potatoes, higher fixed factory burden from underutilized production facilities in Europe and Latin America, and input cost inflation outside of raw potatoes.

To mitigate these headwinds, we took the actions Mike spoke about to temporarily curtail production of a line in the Netherlands and permanently close the production facility in Argentina. These impacts were also partially offset by our cost savings initiatives.

Turning to the balance sheet and cash flow. Slide 15 summarizes the strong cash flow generation that continues to support our strategic and financial priorities. Cash generation has improved meaningfully this year. Through the first 3 quarters of fiscal 2026, we generated $596 million of cash from operations. That's up $110 million versus last year.

This improvement reflects strong working capital execution, driven primarily by lower inventories in North America and to a lesser extent, the timing of accounts receivable collections. Our focus on execution and capital stewardship enabled us to deliver $39 million year-to-date in free cash flow, an increase of $417 million year-over-year.

Capital expenditures were $257 million in the first 3 quarters, down $307 million from last year. We now estimate full year cash spend to be approximately $400 million, aligned with our focus on maintenance, modernization and environmental projects.

Our liquidity remains strong. We ended the quarter with approximately $1.3 billion of liquidity. Net debt was $3.9 billion, our net debt to adjusted EBITDA leverage ratio was 3.4x on a trailing 12-month basis, consistent with last year's third quarter and aligned with our balance sheet priorities.

Turning to Slide 16. We remain committed to returning cash to our shareholders through our dividend and opportunistic share repurchases. During the first 3 quarters of the year, we returned $205 million to shareholders. including $155 million in cash dividends and $50 million of stock repurchases. We did not repurchase shares during the third quarter. After the quarter ended, however, and through March 30, we have repurchased approximately $43 million of stock or 1.1 million shares at a weighted average price of $41.50 under a 10b5-1 trading plan. And earlier this week, the Board approved the next quarterly dividend of $0.38 per share payable on June 5.

Turning to our outlook on Slide 17. We are raising the low end of our net sales guidance and increasing the midpoint. We currently expect net sales in the range of $6.45 billion to $6.55 billion including an approximate 1.8% foreign exchange benefit or about $95 million year-to-date. Adjusted EBITDA is now expected to be in the range of $1.08 billion to $1.14 billion, which includes our current assessment of the additional risk associated with the ongoing Middle East conflict.

In North America, we expect high single-digit volume growth in the second half, which also includes the benefit of an additional week of sales in the fourth quarter. As I noted earlier, third quarter growth was elevated because we were lapping an unusually low quarter last year.

In our International segment, full year volumes are still expected to grow. However, we anticipate year-over-year declines in the second half as we lap unusually strong performance last year and as the fourth quarter is further pressured by the evolving conflict in the Middle East. For reference, sales to the Middle East represents a high single-digit percentage of the international segment volume year-to-date.

Price mix in the fourth quarter will remain unfavorable at constant currency. We expect the price declines to moderate slightly in the quarter, supported in part by the recent price increase we implemented in early March to offset inflation. The price increase effects our noncontracted North American business.

On mix, we assume ongoing pressure to persist for now, reflecting continued growth with chain restaurant customers and a shift towards private label offerings with retail customers. In our International segment, we expect to continue to face headwinds from the dynamics we've discussed.

Adjusted gross margin is expected to decline seasonally in the fourth quarter. down 250 to 300 basis points from the third quarter's 20.9%, including our current estimate of the potential impact from the conflict in the Middle East.

Adjusted SG&A continues to benefit from our cost savings initiatives. In the fourth quarter, SG&A dollars are expected to increase slightly from the third quarter due primarily to an extra week of expenses as well as incremental innovation and technology investments.

We expect a full year tax rate of approximately 28%, with fourth quarter in the mid-teens. The full year tax rate includes approximately $20 million of adjusted tax impact from losses in jurisdictions where we do not expect to receive tax benefits.

We now anticipate full year depreciation and amortization of approximately $395 million compared with the prior estimate of $390 million. The team continues to execute well in what remains a dynamic environment. We are entering the final quarter with a strong balance sheet, disciplined cost management and a sharp focus on operational performance.

Before I hand it over, I do want to acknowledge the leadership transition. This is my final call as CFO with Jim stepping into the role tomorrow. I'm fully committed to ensuring a smooth transition, and I'm incredibly proud of the work this team delivers every day.

With that, I'll turn it over to Mike.

Thank you, Bernadette. As we shared today, we are committed to doing what we say we will do, recognizing that the environment is evolving quickly. North America is executing well, and we continue to have room to grow that business.

Internationally, we are taking actions to manage our costs and position us in a fluid market. Our international focus is fortified with on being on board. And finally, we are remaining disciplined in our capital investments in evolving Lamb Weston into a business that can enjoy strong and growing returns on capital.

Before we turn the call over to Q&A, I want to thank Bernadette. During her time with the company, she has been a dedicated partner and leader, including the past 5 years as CFO during a period of tremendous change in our industry.

We appreciate all she has contributed to Lamb Weston and wish her continued success moving forward.

We are now happy to take your questions.

[Operator Instructions]. We'll take our first question from Tom Palmer with JPMorgan.

Maybe you could just start out asking on utilization rates. I know you've done a lot of work in terms of your plant footprint here over the last several quarters, including the updates today. internationally. So U.S., I think you had the new lines or the previously shuttered lines ramping back up. Where do you sit in terms of ideal rates there? And then with all the actions you're taking internationally, -- is that going to get you into kind of more of that targeted 90-plus percent range?

I appreciate the question, Tom. Overall, in North America, we're in the low 90s with some of the adjustments that we've made to your point. We're excited that we've been able to bring back online, some of those previously curtailed lines. That allows us to be more flexible with our customers to make sure that we deliver for our customers at those high fill rates moving forward.

I will tell you, though, it also allows us to be more thoughtful about the volume that we bring on board and moving forward. When I look at the international business, we have. We've curtailed some lines. We've closed the Monroe facility down in Argentina and move that volume into the Marta Plata facility. And we'll continue to evaluate kind of based on supply and demand and the outlook of the business. I will tell you, it's a little -- not all of our plants make the same items.

So they have different technologies and different capabilities. So it's not as easy as just turning off 1 line. and bringing another 1 back on. And so we want to make sure that we're delivering the right capabilities to our customers as they expect from Lam Weston moving forward.

And then on the pricing environment in Europe, I know it's hard to be overly specific. I think there's kind of 2 nuances this year. One is just the competitive environment generally. But I think secondarily, spot potatoes, as I understand it, are really cheap, and that is causing some maybe heightened pressure given you guys contract in terms of margin.

When we think about next year and the 15% decrease, if that's how the industry is buying, I guess, trying to think more like do you get more on a even scale with the industry next year as how you look at it and maybe we could see more of a margin recovery on that basis.

Yes. It's a combination of multiple factors. It's the capacity imbalance that we're seeing in Europe. It's slower demand and is that potato crop. So when you think about capacity in Europe, it's not only excess capacity in Europe, but it's also -- they typically would export to markets like the Middle East, China and India, and there's been some new capacity that's there.

There's also the restaurant traffic softness that we're seeing across Europe. But to your point, the third element of that is the crop. Now the great thing about our business is each year, you have a reset on that crop.

Typically, in Europe, we will contract in that 70% to 80% range of fixed price contracts. The other kind of 20%, 25% range is in open price contracts. With the reset for this year, we are contracting less acres, and we believe that based on the demand in the market, the rest of the growers will be doing the same thing.

[Operator Instructions]. And we'll go to our next question with Peter Galbo with Bank of America.

My first question is on just North America price mix. There's a few moving pieces there, I think, as we get through Q4 and into next year, the mix headwind, I think, from more chain, but then you mentioned today, I think, a March price increase. And then with potato costs kind of being deflationary in North America for this summer, I just want to kind of gauge as we get through the first half of next fiscal year where pricing is kind of set, just the risk that we continue to kind of see slippage in price mix maybe into the back half of '27 and beyond, just given some of the factors that we're outlining today.

Yes, a few things, Peter, on that. So our expectation is that we're going to continue to have some price mix pressure in fiscal '27. Obviously, with those decisions that we made around pricing in the current fiscal year that will start to we'll have that lapping effect in to fiscal 2027.

We do see price/mix moderating, including some of the benefits of the actions that you talked about. Keep in mind that we see inflation, and we've had inflation over the last several years outside of potatoes, and we need to make sure that we do the best we can to cover that.

We'll provide guidance on fiscal '27 like we normally do with our Q4 earnings, and we'll be able to give more clarity on what that might look like for fiscal '27 at that time.

Okay. And if I go to the reduced CapEx guidance, I think you talked a bit more about maintenance CapEx and thinking back a few years ago, even at the Investor Day, there was discussion around not just capacity expansion, but some kind of elevated structural CapEx for things like wastewater treatment. Like have you been able to maybe what some of those structural step-ups would be? Are those no longer kind of in play? I'm just trying to understand the $100 million decline with a quarter to go, and then maybe how we might think about that kind of going forward?

Yes. I think just as a reminder, obviously, we were spending a lot on capital we were doing the greenfield expansions. And obviously, we have enough capacity in our footprint and don't need that spend.

I'd say what you're seeing right now is a reflection of that disciplined decision-making. We'll continue to have those environmental wastewater capitals. We have to do that as regulations change in some of the states in which we operate. But we're really trying to manage our capital spending and make sure that we make the right decisions that have strong returns.

That being said, there is some timing elements to some of the capital this year that will flow into next year. But we'll come back next quarter and we'll talk about what that fiscal '27 looks like.

Yes. Peter, just to confirm, we have spent the $100 million that we anticipated spending on environmental expenditures this year. So we are on the path of spending those environmental expenditures over that 5-year plan that we have laid out.

[Operator Instructions]. We'll take our next question from Matt Smith with Stifel.

Mike, I wanted to pick back up on the North America top line comments. Volumes are quite strong in the quarter and accelerated on a sequential basis. As you exit this year, can you talk about the volume trajectory based on recent business wins and share gains?

And with the utilization rate back in the low 90s in QSR traffic sequentially improving, do you take your do you deemphasize going after volume to improve your leverage at this point and get more choiceful about volume? And just how does that play out as you look forward over the next year or so?

Yes, I appreciate the question, Matt. We've been focused on driving those customer partnerships. And that's really focused on the quality, the consistency, innovation and value and making sure that our customers are getting the product on time and in full when they need them.

And the great thing that I'm seeing across our organizations, we're really creating a culture throughout our organization of putting that customer first regardless of what function that you're in. Obviously, we're seeing -- we've made some great improvements with those customers, and we're seeing the volume flow through.

As I mentioned earlier, as that volume continues to come through and we see our utilization rates in more of those normalized ranges. It does allow us to be more thoughtful about the business we pick up and about how we manage volume into the future, for sure.

And a follow-up on the inflation and cost outlook. You talked about the fourth quarter seeing continued cost pressure. Are you expecting incremental potato write-offs? Or was this a full evaluation of the stock you have and think you've cleared the decks at this point, meaning the carry in crop to '27, your inventory levels will be in a reasonable place.

Yes. We don't anticipate additional raw write-offs. I think the third quarter write-off reflected the current expectation of demand view and what we're seeing for this crop season. We continue to evaluate that based on what we see in the Middle East. But as of right now, we don't anticipate any additional write-offs, based on where the demand is slowing and the best estimates of our business.

We'll go next to Robert Moskow with TD Cowen.

Maybe just if you could give any kind of an update on what you're seeing in North America competitors, supply chain footprint. I think they're coming towards the end of some long-term expansion projects, some of them greenfield. Do you think that those are on track today -- are they still ramping at this point? Or did they fully ramp and we don't have to worry about further capacity coming online for the next 12 months?

Yes. I can't speak to their production and what those guys -- what our competitors are doing. I know that their facilities are up and running. And I'll tell you, based on our -- the work that we're doing around our customers, we're winning. And our customers are continuing to choose Lamb Weston, and we're seeing that volume growth across our business.

And overall, we're starting to see some of the price mix moderating including some of the actions that North America recently took. But the teams are winning. I think our utilization rates are getting back to where they need to be in the low 90s, and that allows us to be very thoughtful about that volume that we take on in the future.

And we'll take our next question from Alexia Howard with Bernstein.

Can you just ask to begin with about the potato write-off in Europe. Are there things that you can take to avoid that happening again by better demand planning. Is that something that we should not anticipate going forward? Or is it something that continues to be a pressing mark?

Yes, it's a good question. Listen, we have made some adjustments in how we're procuring raw in in Europe for this next crop season that will hopefully allow us to be a little bit smarter and give us a little bit more flexibility in that moving forward.

I think you've seen that this year in North America. We have procured kind of the right amount of potatoes. We have stronger demand supply and demand signals and some capabilities internally that are making us stronger and allow us to be -- do a better job of predicting what those demand signals will be in the future.

Great. And then just to hand back in on North America. Obviously, the new customer wins recently have been lower-priced private label or chain customers on the restaurant side. Now that the capacity utilization is back up into the 90s, it sounds though you can be more selective in who you pick up going forward. Does that mean as we look out into fiscal '27, we could see positive mix growth -- price mix trends. Or is this the new normal? And what gives you the right to win in some of those more profitable accounts that might be out there?

Yes. Alex, I think we're probably a little bit too early. We're going through our annual operating plan right now. So we'll come back at Q4 and share what that might look like for fiscal '27. The 1 thing I do want to remind the group about is -- the new business that we've picked up with some of those large chain customers or even some of the private label business in retail in North America, those have been new propositions to the industry. So they weren't currently purchasing frozen fries, and so it has created some mix headwind, but it is new business that just makes the industry stronger overall and fills the capacity that's out there in the marketplace.

And we'll go next to Scott Marks with Jefferies.

First thing I wanted to ask about just within North America. If we think about the current 90% utilization rate, how much in the way of other curtailed lines do you currently have in North America? And how much, I guess, incremental capacity you have available to bring back online should conditions warrant such action.

Yes. For the most part, we've restarted most of our curtailed mines. And so this allows us to still have flexibility to meet customer demand. but also, as I've said earlier, just be more thoughtful about that business that we bring on in the future.

Okay. Clear on that. And then as we think about internationally and just some of the dynamics going on across the world, I'm wondering what you can share with us in terms of what you're seeing from competitors in terms of their own capacity or where or how they're choosing business in a different fashion versus what they may have done historically.

Yes. I can't speculate on what competitors are doing and so forth or others in the industry. But I can tell you the pace of announcements have slowed. We have heard of some short-term industry capacity curtailments, specifically in Europe as they manage through the crop and kind of the slower demand.

But we think or we believe that the competitive backdrop in some of these international markets may result in less capacity being built than was maybe previously thought, just given kind of the market or industry dynamics.

And we'll go next to Marc Torrente with Wells Fargo Securities.

I guess, first on the cost savings program, you now expect to exceed the prior $250 million target, maybe any more color on where the incremental savings are coming from more on the COGS or SG&A side? And where do you think you can get those expense levels to over time?

Yes. We're on track to exceed the plan like we talked about even here in fiscal 2026. I'd say we're driving a cultural shift and a different mindset around costs in our organization. And we really have a strong focus on continuous improvement. A lot of that incremental cost savings that you're seeing is actually hitting the cost side, supply chain side of things, more so than any other areas.

Obviously, we've identified some additional costs as Yan comes in, does is onboarding as well as Jim, given Jim is going to be the 1 who's leading this for our organization allow them to kind of take a look at where the opportunities are. And at the right time, we'll come back and share what any future cost savings plans might look like.

Okay. Great. And then the topic of portfolio management has been brought up recently. Maybe just more on how you're thinking about your positioning right to win and opportunities in certain regions and I guess, general strategic approach going forward?

Yes. Obviously, a big piece of our focus to win plan is prioritizing markets and channels, and we're doing that. as Jan comes in, he has a really strong background in those international markets. He's been the CEO and led organizations in a number of the markets in which we operate in. He's going through his onboarding process right now. He's assessing our different businesses around the globe. And he'll be on the call next quarter and be able to give kind of his perspective and insights in what he is seeing.

But we continue to look at our business overall and really focused on what are the markets where we have the right to win long term. And what adjustments we need to make within our markets to make sure we're successful and drive our business and meet our customers' expectations long term.

And we'll go to our last question, Carla Casella with JPMorgan.

Your tariff discussion was very helpful. I'm just wondering if you can also talk to the Mideast conflict and the costs you could potentially see in higher transportation or key raw materials and if you're seeing any disruption there on the cost side?

Yes. I think the impact in the Middle East is ultimately going to depend on the length and severity of the conflict -- there's 3 areas of risk that I see in the Middle East. One is obviously lower volumes to the region. I think Bernadette shared in the prepared remarks that the Middle East makes up high single-digit percent of our international segment.

And obviously, if volumes are -- if it becomes a prolonged conflict, that does potentially have some impacts on inventories. But for me, as I look at this, it's more around the increased volatility in some of the commodities, things like packaging fuel and so forth. And that impacts markets around the globe.

Obviously, we'll -- we're working through our annual operating plan right now. We'll come back in fiscal -- or next quarter and talk about what the fiscal '27 outlook looks like and communicate at that point what those risks could be. But we feel good about the opportunities and the buildings that we have in order to pass through some of those costs as they come through.

Yes. And Mike, the only other thing I would add on the cost side is that as part of our broader risk management framework, we do hedge portions of our key inputs to reduce volatility, now that doesn't eliminate all of the price risk, but the combination of our hedging program and diversified sourcing and our commercial agreements gives us that balanced level of protection.

That will conclude our Q&A session. I'll turn the conference back to Debbie Hancock for any additional or closing remarks.

Thank you, Lisa, and thank you to everyone for joining us today. The replay of the call will be available on our website later this afternoon. And I hope everyone has a good rest of your day.

And that concludes today's call. Thank you for your participation. You all may disconnect now, and have a great day.

Good day, and welcome to the Lamb Weston Second Quarter 202 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's Second Quarter Fiscal '26 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com.

Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements.

Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix to our presentation.

Joining me today are Mike Smith, our President and CEO; and Bernadette Madarieta, our Chief Financial Officer. Let me now turn the call over to Mike.

Thank you, Debbie. Good morning, and thank you for joining us today. Our global teams are embracing and executing our Focus to Win strategy, strengthening customer partnerships and driving cost savings. I want to thank the team for their ongoing dedication and solid execution.

As I reflect on the first half of the fiscal year, we are building momentum in the business and addressing areas of opportunity. Business turnarounds are not linear, but we are pleased with the progress we are making. Specifically, we are seeing top line strength as we focus on customer relationships, which has led to share gains. Volume growth was up 8% in the second quarter and 7% for the first half of the year.

To keep up with customer demand and ensure we maintain high customer fill rates, we are reopening previously curtailed capacity in North America. North America, the largest segment of our business, is in a solid position. As we partner with customers and deliver on consumer insights, the team is leaning into Lamb Weston's history of quality, innovation and value, which has resulted in several new item launches. Our cost savings plan is well on its way, and we expect to deliver our target for the year.

But equally as important, we are building a culture of continuous improvement within the organization that will unlock future opportunity and strengthen us competitively. And we are reducing volatility with customer contracting and raw procurement strategies. That being said, there remains a dynamic macroeconomic and competitive environment, especially across international. But in this changing market, we have clear and accountable plans to control the controllables as we work to deliver long-term profitable growth for Lamb Weston and improve returns for our shareholders.

Finally, we are managing our capital efficiently. We are delivering strong free cash flow and our capital spending is down. In addition, we repurchased $40 million of shares during the second quarter. And finally, in line with our long-standing commitment to returning cash to shareholders and in keeping with our annual dividend increase since becoming a public company, the Board approved a 3% increase to the quarterly dividend.

Five months after unveiling our Focus to Win plan, we are making solid progress. We are winning with customers as we focus on the principles that made Lamb Weston the industry gold standard, category-leading innovation, exceptional products and customer-centric partnerships. There is meaningful opportunity ahead of us.

Strengthening customer partnerships is the cornerstone of our strategy and where we have spent much of our time in the last several months. We continue to drive momentum in retention and wins. I, along with our teams, are meeting with our global customers during what remains a dynamic consumer environment globally. Our goal is to drive true partnership in service, joint business planning, menu innovation and importantly, how we can grow together.

We have line of sight to volume growth for the balance of the year. We ended the second quarter with more than 90% of our open contracted volume negotiations concluded, including all material contracts. By the end of calendar 2025, we will have completed negotiations on the vast majority of our large chain contracts, supporting our customers with price and trade. We have gained share, including with new and growing customers. Bernadette will speak in more detail about restaurant traffic trends, but our customer success has allowed us to increase volume this year despite soft traffic.

To maintain our high service levels and customer fill rate standards, we restarted North American lines that were previously curtailed. This production began late in the second quarter and includes additional production lines to what we discussed during our first quarter call. With the capacity being reintroduced into our market and our network, capacity utilization rates in our North America facilities are returning to more optimal levels versus the very high utilization rates we recently experienced.

We are benefiting from our global footprint. While North America accounts for approximately 90% or more of our profitability, the international markets are estimated to represent 75% of the global industry volume growth through 2030. This is an attractive opportunity that we are well positioned to capitalize on. Our global manufacturing footprint and supply chain network enable us to partner with existing and new customers around the world, capturing volume in fast-growing markets such as Asia and Latin America. Our global footprint enables us to partner with the largest customers around the world, tap into faster-growing markets and leverage a global manufacturing supply chain to diversify supply and risk.

In the near term, and as we discussed during our first quarter call, the international environment remains competitive. In Europe, a strong potato crop has coincided with softer restaurant traffic and lower export demand due to localization of recently added production in other regional markets. Our European business is also more open and less contracted, which contributes to pricing pressure. And while there has been some recent consolidation in the market, it is too early to assess its impact.

In Latin America, where there are a few established players, we're building a strong foundation for long-term growth. Our new facility in Argentina is already producing and qualifying product for key customers. The region's market is growing quickly. And as we scale, we expect to capture meaningful share and strengthen our position as a preferred supplier. We are actively working to rebalance supply and demand within our network, better leveraging underutilized assets and ensuring we have the right assets globally in the right places to serve customers in our priority markets and channels.

Shifting to our achieving executional excellence. Our cost savings initiatives are on track. As part of these efforts, we are building a truly global supply chain with the customer at the center of everything we do. Manufacturing and the centers of excellence are working as one, delivering improvements in run rates, safety and becoming better aligned on how we measure ourselves and how our customers measure us. In addition, we are investing in tools that will help improve our demand and supply planning as we optimize our supply chain.

Innovation is another core pillar of our Focus to Win strategy. Internationally, we have launched our new Snap Fries, which is our crispy fast fry, an innovation that allows for crispy and fast oven preparation. Our testing of this product is ongoing, and we've had early success expanding with airline customers. This innovative product opens additional market opportunities to sell hot crispy and delicious fries where we couldn't in the past.

Finally, a quick update on the crop, which is consistent with the update we provided with first quarter earnings and demonstrates the focus we have on planning our North America raw needs. We've completed the harvest, and we are processing from storage across our growing regions in both North America and Europe. Overall, yields were above average and quality was average in both North America and Europe.

I will now turn the call over to Bernadette to review the quarter and our outlook.

Thank you, Mike, and good morning, everyone. I'm starting on Slide 11. Second quarter net sales increased 1%, including a $24 million benefit from foreign currency translation. On a constant currency basis, net sales were essentially flat versus last year. Volume rose 8%, driven by customer wins, share gains and strong retention, especially in North America and Asia. This growth came despite softer restaurant traffic, which speaks to the strength of our customer partnerships and execution.

In the U.S., QSR traffic was flat over the trailing 3-month period of August, September and October. Within that, QSR chicken grew, while QSR burger traffic was down 3%, improving slightly in October. French fry volume in North America Foodservice was up slightly over the same 3-month period, reflecting continued demand resilience. Internationally, restaurant traffic in most markets declined, including the U.K., our largest international market, which was down about 3%. Even so, our teams delivered growth in this environment, which is a testament to their focus and execution. Price/mix declined 8% at a constant currency, primarily due to the carryover and current year impact of price and trade to support customers as well as mix shifts towards lower-margin sales.

To summarize, we delivered strong growth and held net sales essentially flat in a tough traffic environment, positioning us well as we move into the second half. Looking at our segments. North America net sales were essentially flat compared with the prior year. Volume increased 8%, supported by recent customer contract wins and share gains. Price/mix declined 8%, reflecting the carryover and current year impact of price and trade to support our customers and unfavorable mix.

In our International segment, net sales increased 4%, including a favorable foreign currency impact of $23 million. At constant currency rates, net sales declined 1%. Volume grew 7%, while price/mix at constant currency declined 8%, primarily due to pricing actions in key international markets to support customers and unfavorable mix.

Asia, including China, once again led our volume growth in the quarter and volume also grew with multinational chain customers. In Europe, a strong crop and soft restaurant traffic has pressured pricing as incremental industry capacity in local regional markets has reduced exports. We have taken steps to support our customers with price and trade and expect these actions will continue through fiscal 2026. At the same time, we're actively working to rebalance supply and demand, ensuring we have the right assets in the right places to serve our customers in our priority markets.

In Latin America, we continue to ramp up production at our new facility in Argentina. As we mentioned last quarter, it will take time to reach target utilization levels as we qualify lines and bring on new customers. During this ramp-up, fixed costs will be spread over lower production volumes, resulting in higher cost per pound for the remainder of the year. While reaching optimal production will take time, we see this as a significant opportunity to drive volume growth and margin expansion over the coming years.

Let's now turn to profitability, where we continue to see the benefits of our cost savings initiatives and disciplined execution even as we navigate mix and pricing headwinds. On Slide 12, as expected, adjusted EBITDA declined $9 million compared to last year to $286 million. Adjusted gross profit was in line with expectations, down $16 million year-over-year, primarily due to unfavorable price mix. This was partially offset by higher sales volume, benefits from our cost savings initiatives and lower total manufacturing cost per pound.

Our cost-saving efforts are not only reducing costs, but also improving processes and efficiencies across our operations, positioning us well for the future. Input costs outside of raw potato prices increased in the quarter, driven by tariffs, labor, fuel, power and water and transportation rates. While agreements in principle for palm oil tariff exemptions from Indonesia and Malaysia are in place, they have not yet been finalized, so we continue to forecast these expenses.

Adjusted SG&A expenses declined $8 million versus the prior year quarter, reflecting benefits from our cost savings initiatives, partially offset by compensation and benefit accruals. Adjusted equity method investment earnings was $3 million, a decline of $8 million as a result of lower production volume and an unfavorable mix of sales at our joint venture in Minnesota.

Overall, while we faced headwinds from price mix and input cost inflation outside of potatoes, we delivered solid volume growth and meaningful cost savings.

Turning to segment EBITDA performance on Slide 13. Adjusted EBITDA in our North America segment increased 7% or $19 million versus the prior year quarter to $288 million. This growth reflects strong execution, including higher sales volume and lower manufacturing cost per pound, driven by raw potato deflation and benefits from our cost savings initiatives. These improvements were partially offset by price and trade to support our customers.

In our International segment, adjusted EBITDA declined $21 million to $27 million. This reflects price and trade to support our customers as well as higher manufacturing cost per pound. These costs include start-up expenses associated with ramping up our new Latin America production facility in Argentina and increased factory burden and other costs in Latin America and Europe as we work to rebalance supply and demand and manage inventories. Importantly, these costs were partially offset by the benefit of our cost savings initiatives and higher sales volumes.

Moving to liquidity and cash flows on Slide 14. Our liquidity and cash position remains strong. We ended the quarter with approximately $1.43 billion of liquidity, including approximately $1.35 billion available under our revolving credit facility and $83 million of cash and cash equivalents. Our net debt was $3.6 billion, and our adjusted EBITDA to net debt leverage ratio was 3.1x on a trailing 12-month basis, consistent with our commitment to maintaining a solid balance sheet.

In the first half of fiscal 2026, we generated $530 million of cash from operations. That's up $101 million versus last year, driven by favorable working capital changes, primarily lower inventories in North America and higher earnings. Free cash flow was strong at $375 million. Capital expenditures were $156 million in the first half, down $331 million from last year as we completed major growth investments and facility expansions. Looking ahead, we expect fiscal 2026 capital expenditures to come in below the $500 million target, reflecting disciplined investment and a continued focus on sustaining performance.

Turning to Slide 15. We remain committed to returning cash to our shareholders. During the first half of the year, we returned over $150 million, including $103 million in cash dividends and $50 million of stock repurchases. This includes approximately $40 million in stock repurchased in the second quarter. We have $308 million remaining under our current repurchase authorization. And year-to-date, we've repurchased sufficient shares to offset the expected equity plan dilution. In addition, today, we announced an increase in our quarterly dividend to $0.38 per share.

Our capital allocation priorities remain clear. We are investing in the business and its capabilities, focusing on areas that differentiate Lamb Weston and support the execution of our strategy. At the same time, we aim to maintain a strong balance sheet and opportunistically return capital to shareholders with dividends and share repurchases.

Let's now turn to the outlook on Slide 16. We are reaffirming our fiscal 2026 outlook, which includes the contribution of a 53rd week in the fourth quarter. For the balance of the year, we expect continued volume growth and strong sales momentum, and we are on track towards delivering the high end of our sales guidance range. North America remains solid with second half volumes expected to grow at or above first half rates, supported by strong demand and a vast majority of our contract negotiations being complete. International volumes in the second half are expected to be flat year-over-year as we lap prior year customer wins.

As anticipated, price/mix will remain unfavorable at constant currency in the second half, but to a lesser extent than the first half. In North America, year-over-year price declines are expected to ease compared to what we saw in the first half, while the shift towards lower-margin restaurant customers and private label retail customers is likely to persist. In our international markets, we anticipate continued headwinds from softer restaurant traffic, added capacity and a strong comp.

On margins, we expect adjusted gross margin in the second half to be flat to down versus the first half's 20.4%, reflecting price/mix dynamics and higher manufacturing costs internationally, including ramp-up costs in Argentina and underutilization in Europe as we work to rebalance supply and demand.

Adjusted SG&A is expected to continue to benefit from cost savings initiatives. So in the second half, we anticipate incremental investments in innovation and advertising and promotions to support our long-term strategic plan as well as an extra week of expenses in the fourth quarter. Our full year tax rate is projected at 28% to 29% with second half rates in the low 20s.

To summarize, given the price/mix dynamics and higher manufacturing costs in our International segment, we believe maintaining our adjusted EBITDA guidance range of $1 billion to $1.2 billion is the most prudent approach. We currently expect to finish closer to the midpoint. We remain confident in delivering strong results for the year, supported by strong volume performance and progress under our cost savings initiatives.

With that, I'll now turn the call back over to Mike.

Thank you, Bernadette. In closing, we are driving and expect to continue driving volume growth, share gains and customer momentum. Our customers are turning to Lamb Weston for the quality, innovation and value for which we are known. Our team is embracing and executing our Focus to Win strategy, including delivering our cost savings program targets.

We are optimizing our global supply chain, restarting curtailed production in North America and working to rebalance supply and demand globally. We are generating strong free cash flow and are increasing our quarterly dividend 3%. And we are focused on executing our strategy and delivering good results for the year.

With that, Bernadette and I are happy to take your questions.

[Operator Instructions] The first question comes from Tom Palmer with JPMorgan.

You made a comment in the prepared remarks about rebalancing supply and demand. It sounded like a temporary pullback in production is anticipated in Europe. In the U.S. last year, there was a plant closure and lines curtailed. I'm just wondering, should we start thinking about similar actions in Europe coming into play, so something more substantial than maybe reducing shifts? Or are there other actions that can be taken to kind of aid this rebalance?

Tom, I'll take the first part of that and then let Bernadette comment further. As we said, we've restarted some of those curtailed lines that we have previously curtailed in North America driven by the strong volume. We have also communicated to our employees that we are curtailing a single line in our European market as well. So we are looking across our global supply chain and making sure that we're taking the right approaches to balance that supply and demand globally.

Okay. And then just as we think about -- I understood the commentary, I guess, in Europe on some of the pressures, but I did want to maybe focus on North America a bit. As we think about some of the, I guess, volume drivers in the back half and some of the less investment in price relative to the first half, should we start to see in 3Q, for instance, more of a seasonal uptick in North America? Or are there items maybe there to consider?

Yes. So thanks, Tom. As it relates to North America, a big piece that we need to consider is that it's not only price, but it's a large component of this is mix. In North America, we are seeing a higher proportion of our business with multinational chain customers as well as we are seeing in our retail channel, a shift from branded to more private label. And so that is the -- what we would expect to continue in the back half of the year, which will affect gross margins as we move forward and is also contributing to what we shared in our prepared remarks of the 20.4% or relatively flat gross margins in the back half of the year relative to the first half.

And the next question will come from Peter Galbo with Bank of America.

Mike, I maybe wanted to actually pick up on the international side. I believe in your prepared remarks, you kind of walked through the dynamics in Europe and Latin America. I didn't hear and maybe I missed it, but I didn't hear any commentary on Asia and in particular, some of the Asia export markets. I think there's been a fair amount of trade press just around local competitors in the region, not only getting more competitive in home markets, but in some of your export markets throughout Asia. So I would just love to have an update from you there on kind of what you're seeing real time and whether or not that competition has intensified since we spoke like 3 months ago.

Yes. Let me -- thanks, Peter. Let me speak to a few of those markets that you suggested. As Bernadette talked about some of the mix shifts in our international markets, some of that is driven by strength that we are seeing in China as well as APAC. When you look at Europe, there's been a really strong crop, and it's resulted in lower cost raw. And that's on the backdrop of more depressed kind of traffic in those markets.

When you look around the globe, there has been some added capacity in some of those developing markets, like you said, and that is putting more pressure on exports out of Europe into some of those markets, which has challenged the price there a little bit. But overall, we believe in the future of the international market. We believe that as we support our customers in those markets, we'll continue to drive growth. Argentina and Latin America is another strong area that has high growth rates. And we believe that having that asset down in that market will set us up for future success.

Okay. And Bernadette, I mean, I think the flat to down commentary on the second half gross margin, does that hold for both quarters as well? If I look back at Lamb Weston, the history of Lamb Weston as a public company, like third quarter gross margins have been down versus the second quarter like twice than it was during COVID. So I don't even know if we count that. So just want to understand if that comment is very much a second half comment or if it also applies to the third quarter.

Yes. Thanks, Peter. The comment that I made in my prepared remarks was definitely for the second half of the year and then that being primarily driven by mix shifts and pricing headwinds as well as the ramp-up that we have in Argentina. So while the normal seasonality is still underlying the business, in the second half, we're going to see some moderation on those typical seasonal trends, particularly flattening the third quarter seasonal increase in gross margins. And then we would expect the fourth quarter to step down from there.

And the next question will come from Matt Smith with Stifel.

Bernadette, the outlook calls for moderating price/mix drag in the second half in North America. A couple of follow-up questions there. In terms of pricing on this year's contracts, is that landing in line with the performance relative to last year? And if I go back to the initial guidance, price/mix was expected to moderate to kind of a low single-digit headwind in North America. Is that still the right way to think about it? Or has the mix impact caused that moderation to maybe lessen a bit?

Yes. Thanks, Matt. So first, I just want to start off with the strong momentum that we've had in the first half of the year. And North America being our most profitable segment is strong. We expected price/mix to be down more in the first half of the year than the second, and we still expect that trend. And as you mentioned, it's just very important to note that the combination of both price and mix is what's affecting our North America segment. And that mix impact has been more pronounced recently with the growth in more chain business as well as that mix shift from branded products to private label.

And so when we think about that mix headwind, should we -- is that a drag on performance through really this time next year, just given how the balance of the business has been performing?

We'll need to continue to monitor that. Certainly, as it relates to our chain customers that would continue. We'll continue to monitor whether the trend from branded to private label persists, but we would expect that to persist throughout the balance of this year.

And our next question will come from Robert Moskow with TD Cowen.

I wanted to dig into the decision to open -- reopen more of your capacity in North America. The wording was a little confusing in the prepared remarks. You said you did it because you -- because facilities are returning to more optimal levels versus the very high utilization rates recently experienced. So are you saying that utilization rates got too high in first quarter, you need to reopen more of your production lines in order to get them lower? And is there any kind of negative impact to your profitability as a result of that or not? And then secondly, how long do you think this will persist? Is this a permanent decision or not?

Yes, Rob, I appreciate the question. We've been focused on driving customer partnerships over the last several months. When you think about where we spend our time, it's around the customer and around driving out costs. And because of that, you are seeing the results of that hard work, volume up 8% in the quarter.

As you said, yes, utilization rates in our North American facilities were in the low 90s as we grew that volume over the first half of the year, they got to a level where we needed to open up this additional capacity to ensure that we continue to meet our customers' expectations regarding fill rates. The plants are running really well. As you have those lines start to run more frequently, you start to see better run rates, better OEEs, better potato utilization, which is all positive. So we don't expect a drag from a cost basis from turning those lines back on.

Yes, Rob. And if I could just add, the second comment or question that you had was related to the impact on margins. And in the first half, if you think about the results, we had higher fixed factory burden driven by North America in Q1. And then as we've restarted those lines in North America, we've seen that lessen, but more in international in Q2. In the back half of the year, we would expect there to be a net positive from a factory burden perspective, led by North America as that absorption improves with restarting those lines. But international is going to remain a headwind with Latin America and Europe continuing to carry incremental costs.

Got it. And in terms of like keeping these lines open, it's for the foreseeable future. There's -- it's not a temporary measure.

Yes. As we said in the prepared remarks, I think as I look at the full year, North America is in a solid position, and we're seeing more predictability. And so we plan on having these lines open as we continue to demonstrate our strength with our customers and the volume here in the North American market.

And the next question comes from Alexia Howard with Bernstein.

Can I ask how you're managing to improve execution through increased discipline, more accountability and metrics. I know you talked about how, when capacity utilization was very high in the last few years, it was very hard to get your arms around all of that. Obviously, you've taken a little bit of a pause on capacity utilization. It's now ramping up again. But what can you manage and monitor now that you maybe couldn't do a couple of years ago? And how is that helping your ability to execute and keep everything flowing smoothly?

Yes, I appreciate it, Alexia. There's a few things that are going on. One, as we've had started our Focus to Win work and really focused on the executional excellence part in our cost savings program, we've put clear accountabilities in place across our supply chain. We are now measuring ourselves and certain KPIs in a number of different areas and really focused on delivering those at the plant level. We've had AlixPartners who participated in some of the work with us, have helped us put together the right scorecarding and the right tracking in place, and we look at that on a regular basis. We're also investing in additional support in our demand and supply planning to make sure that we execute on a better basis or a more accurate basis moving forward that reduces or adds, I should say, better predictability in the business moving forward.

And the next question will come from Max Gumport with BNP.

Halfway through the year, half of the year left. I'm curious what scenarios you're seeing that could still push you to the lower half of your adjusted EBITDA guidance? And asked differently, what prevents you today from raising the low end of the range?

Yes. Max, as I think about it, we're working really hard to deliver the commitments and the expectations that we've made. I think as you look at our overall business, we've delivered strong volume momentum. We've made meaningful changes to how we operate, both in our cost structure, but also in our operations overall, which we've talked about. I think restarting those curtailed lines in North America is a great sign and that volume that we're seeing come through. So we're really proud of the accomplishments that we've made in such a short amount of time.

That said, turnarounds are not linear, like I said in the prepared remarks, and we're navigating an ongoing competitive environment. We're seeing continued soft traffic. There's continued macroeconomic headwinds like everyone is facing. But I'll tell you, as I look at it for the full year, I think North America is in a really solid position, and we're seeing more predictability, as I said earlier.

When I think about those international markets, they remain a bit more dynamic. We got to manage through that the right way. And you've heard us say this already. There was a lot -- a good crop in Europe, which has led to lower costs in that market. There remains a soft demand around traffic in those markets. And then as capacity has been built in some of those regions around the globe, there's less exports from Europe, which is creating some of the pressure in that market. That's really where we're seeing the challenge in the future.

Yes. And Max, just to confirm, in the prepared remarks, we did say that we're expecting to be near the midpoint of that EBITDA range. And again, the factors being price/mix headwinds as well as start-up and ramp-up costs in Argentina, along with additional fixed factory burden from underutilization of the manufacturing capacity in Europe as we work to rebalance supply and demand.

Great. And as a follow-up, I think, obviously, the shares are down meaningfully today. And I think part of what's being reflected there is investor concern around if Lamb Weston is not able to raise the low end of the guidance today on EBITDA, what does that mean for '27, where that lower half of the range is more likely in the remainder of '26. And what does that imply for '27? Does it imply further EBITDA declines next year as well? Is there any commentary you can offer to push back against that just given how the shares are performing right now?

Yes, here's what I'd say. Listen, we're working hard to deliver on our commitments and expectations. And I think we're taking prudence in our guidance to make sure that we deliver going forward. I'd say we're still early in the innings in our Focus to Win plan. We just rolled it out 5 months ago, and the traffic environment remains a bit challenged. But we believe in our strategy. We've had some great improvements around our business, especially in costs and also building those customer partnerships.

A key element of improving our margin over the long term is going to be unlocking additional cost savings. We're well on our way this year. We believe we have the right plan in place to continue to do that in the future. But we'll provide more details on what we think those margin targets will be once we're a little bit further along in our Focus to Win process.

Yes. And just to add, as Mike has said in the prepared remarks, North America is our most profitable segment, and it's in a solid position. There are some price/mix headwinds in the back half of the year, and there are some incremental costs related to ramp-up but under utilization, and we've already provided an example of actions that we are taking to manage those costs. So for now, we expect to be closer to the midpoint, but very important to keep in mind that our most profitable segment, the North America segment is very strong right now. And in international, we're working through those dynamics.

[Operator Instructions] We'll go ahead and take our next question from Scott Marks with Jefferies.

I wanted to ask a little bit about the price/mix dynamic in North America, specifically, you highlighted the mix impact of that headwind. As it relates to the other side of it, kind of the trade support component, wondering maybe how you're thinking about that in terms of where your support is right now for customers and whether or not you believe there's some incremental support warranted going forward? Or are you comfortable with where levels are right now?

Yes. I appreciate the question. Listen, we're really focused on driving those customer partnerships and driving the volume. You saw that in the first half of the year. As we mentioned in our prepared remarks, about 90% of those large chain contracts have been settled. We'll have the rest of our contracts will get settled here over the next couple of weeks, and we feel good about where things are at. As we've gone through that RFP and contracting time period, there have been some customers where we have needed to defend some of the pricing to make sure that we succeed with those customers long term and keep those customers. And those are customers who are driving growth and having success in the marketplace.

But as you said, I mean, the thing that I want to make sure is clear is that not all of this is price related. There is a mix component of which Bernadette talked about. And a piece of that is mix between customers within the restaurants, also mix with some of those faster-growing QSRs and also some mix in our retail side of the business as we're seeing a shift from branded to private label. But the predictability of our North America business is much better than it has been in the past.

And just to make sure that in the prepared remarks, you did catch that we do expect in the second half for the price/mix headwinds to moderate slightly as we lap the fiscal '25 pricing actions. So that's important to keep in mind as we look to the back half of the year.

Understood. Second question for me, maybe on prior calls, I think you had noted a significant amount of capacity in international markets or plans for international capacity that had been paused previously. But it sounds like today, you're talking about there has been actually some added capacity. So wondering if you can just help us kind of square the 2 in terms of what happened with those projects that were previously paused.

Yes. Listen, the pace of newly announced capacity has definitely slowed. I think what we've been speaking to is some of the capacity that has been added over the course of the last year or so in some of those developing markets. But we believe that the industry is going to be rational over time. I probably was starting to sound a little bit like a broken record. And we'll continue to manage our supply chain footprint as we have in the past. We believe that when traffic returns, we're going to be well positioned to benefit from that growth. But again, we have heard and continue to hear of postponements or delays or even cancellations in this market and believe that the environment will be rational.

And the next question will come from Marc Torrente with Wells Fargo Securities.

First, you called out visibility to volume growth in the back half with North America at or above the front half. Just want to get a sense of how much of that is driven by the 53rd week and how the underlying momentum is against tougher laps? And I guess, what that could look like entering fiscal '27?

Yes. So as it relates to our volume outlook, what we're expecting to see in the second half is that it will be relatively consistent other than the 53rd week. Again, that is based on the pace of increase in volumes that we've had with some of our chain customers in the first half of the year. As it relates to international, we expect it to be flat in the second half of the year compared with the prior year as we continue to navigate those dynamic markets.

Yes. And I've already shared a little bit about where -- at the right time, we'll come back and talk about where we believe margin will be in the future, but we believe that our Focus to Win plan has us on track and to deliver growth. Consumption, if you look at it, is expected to be between 2% and 4% and over the next, call it, 5 years or so. And you're going to see that higher in emerging markets and lower in some of the more established markets.

But I think as we've demonstrated in the first half of the year, we're implementing a strategy that positions us to gain share and really lean into some of those premium segments of the market. So we're really confident in our ability to grow volume with our customers even in a challenged environment or a challenged traffic environment that we're seeing today.

Okay. And then yes, on the traffic front, continues to be soft. Are you seeing anything in November, December that suggests any improvement or deterioration? And what are your expectations for trends over, say, the next 12 months?

Yes. I think we just saw the November data last night. I think it's very consistent to what Bernadette shared in the prepared remarks. So nothing different from that.

And the next question will come from Carla Casella with JPMorgan.

I was just wondering if you could give us a little more color in terms of where you think overall industry capacity for frozen stands and if it varies dramatically by country or region.

Yes. I shared a little bit of that earlier. Like I said, we believe that the market is going to be rational over time. I probably sound like a broken record. I've said that in several calls over the last couple of quarters. But we have heard of delays and postponements. We have seen some capacity built in some of those developing markets, which is having an impact on exports out of Europe, especially given the low cost of raw. But again, there's been some consolidation in the market, and we'll continue to see how that potentially impacts the future. But we believe that this industry is going to be rational and has been. We'll manage through it the right way as we are and as you've seen in the first half of the year.

Okay. And sorry I missed part of the early part.

And the next question will come from William Reuter with Bank of America.

You've made some comments today about focusing on execution, working with your partners. It sounds like in some instances, maybe you're paying penalties or having to accept pricing that is lower than would be fair based upon your prior missteps, maybe some of the ERP challenges. I guess, do you believe that this is the case? And do you believe that over time, as you continue to have high fill rates that you may be able to demand greater pricing from those customers?

Yes, I don't think that's the case at all. As we shared, we feel really good about where our North America business is at. In the current macroeconomic environment and with slower traffic or softer traffic, we're winning in the marketplace when it comes to volume. So our customers are turning to Lamb Weston because of that history of innovation, quality consistency and delivering on our service, and we're proving that. We spent a lot of time focused on our customers. And when you have the right focus, you see results. And that's what you're seeing in the marketplace right now and believe we'll continue to do that into the future.

As Bernadette mentioned, yes, price/mix was down in our North America business, but it's important to keep in mind that a large sizable portion of that is from mix, which is driven by some of those shifts from branded to private label and retail as well as some shifts between QSR customers or restaurant customers in the current traffic environment.

Yes. And to be clear, all pricing has been based on competitive market conditions.

Got it. That makes sense. And then with the stock down, you're still below your 3.5x leverage target. How is this going to inform decisions on capital allocation and potential acceleration of share repurchases?

Yes. So our capital allocation priorities remain consistent with what I shared in my prepared remarks. We're focused on spending capital where we need to spend to deliver our strategy and our business. We will always, as we have in the recent past, look at opportunistic share repurchases. Nothing will change there. But we're focused on delivering our capital allocation strategy, which includes investing in the business and returning cash to shareholders.

And that does conclude the question-and-answer session. I'll now turn the conference back over to Debbie Hancock.

Thank you, Justin, and thank you, everyone, for joining us today. The replay of the call will be available on our website later this afternoon. Have a great rest of your day and a happy holiday season. Thank you.

Thank you. That does conclude today's conference. We do thank you for your participation, and have an excellent day.

Ladies and gentlemen, good day, and welcome to the Lamb Weston First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's First Quarter Fiscal '26 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results.

You can find the GAAP to non-GAAP reconciliations in our earnings release and the appendix to our presentation. Joining me today are Mike Smith, our President and CEO; and Bernadette Madarieta, our Chief Financial Officer.

Let me now turn the call over to Mike.

Thank you, Debbie. Good morning, and thank you for joining us today. The Lamb Weston team delivered first quarter results that exceeded our expectations and show commercial momentum in our business. While we are early in our focus to win execution, we are energized and excited by the emerging evidence of results coming from the foundation that we began to lay earlier this calendar year. Our goal remains to drive profitable growth and win with customers by focusing on the principles that made Lamb Weston the industry gold standard, category-leading innovation, exceptional products and customer-centric actions.

We are early in the journey, but our North Star is clear. I want to thank our hard-working team globally for their excellent work. Let me provide a few key messages I would like to leave with you today. First, we delivered another quarter of strong volume growth. This is a result of excellent work across our organization from innovation, quality, consistency and our focus on the customer. We are seeing positive customer momentum as we invest behind strategic differentiators.

Second, we are acting with urgency to implement our new strategic plan, Focus to Win, including working to deliver our cost savings program, which is in the early innings, but tracking to our plan of achieving at least $250 million of annual run rate savings by fiscal year-end 2028.

Third, we have new innovative products coming this fall, and we are winning new business and growing with existing customers as our teams go to market with a more customer-centric Lamb Weston organization. Fourth, in response to sustained volume growth in North America, we are restarting a curtailed line. Lastly, we are acting with urgency to position Lamb Weston for long-term success and shareholder value creation, including by prioritizing the specific markets and products where we believe we have a sustainable competitive advantage.

Now let's discuss the quarter in more detail. Our first quarter results were led by volume growth in both segments. Price mix within our expectations, the benefits of our cost savings initiatives and significant progress in improving working capital, reducing our capital investments and driving strong free cash flow generation.

As we roll out our Focus to Win strategy and drive operational and strategic changes across our business, we are doing so from a leadership position within a category of opportunity, whether at home or away from home, let's take a minute to remind ourselves why fries. Traditional French fries are one of the most profitable items on restaurant menus. Fries are the most ordered item at U.S. restaurants. They appeal to a broad range of consumers in our America's favorite order across every generation. The fry attachment rate or how often someone order fries with their meal remains approximately 2 percentage points higher than before the pandemic.

What that means is that when people go out to eat, they are ordering fries more often than in 2019. And we see positive trends around the globe. For example, global demand is growing with an estimated 44% of global menus offering fries. And as multinational and local market QSRs expand, they continue to see developing markets with fries, which is trending positive.

Finally, global fry volume growth has outpaced total food growth versus 2019. In July, we launched Focus to Win, our new strategic plan to unlock near and long-term value. And while it is early in our efforts, we are making progress. I see it in the focus our teams have and the decisions we are making. We have clearly identified savings plans and our teams are executing. All this is happening as we work to be our customers' #1 partner, a world-class potato company and an industry-leading innovator.

Looking at each of the pillars of our strategy. A few early examples include: within strengthening customer partnerships, we have realigned our sales teams around our priority markets. In North America, we are augmenting our successful direct sales force with a broker model to expand our reach into underpenetrated channels of the business. The Lamb Weston organization is embracing a customer-centric mentality. We have secured several new wins around the world, including expanding our share in business in key away-from-home categories such as C-stores and Cash & Carry. And outside the U.S., we've increased our business with QSR customers.

In terms of executional excellence, the supply chain organization is elevating Lamb Weston's operations. We have undertaken programs across manufacturing, logistics and procurement that are not just driving cost savings but meaningfully improving our run rates, our quality and our customer satisfaction metrics. In response to sustained volume growth in North America, as previously mentioned, we are restarting a curtailed mine in the latter part of the second quarter to ensure we maintain strong customer fill rates. Our global footprint and the untapped capacity in our manufacturing network allows us to take on new business and provide additional support for our customers.

Additionally, we began shipping from our new manufacturing facility in Mar del Plata, Argentina. Approximately 80% of production will be destined for export, primarily for Latin America, including Brazil. Finally, setting the pace for innovation. We take great pride in our position as an innovation leader, and we are working to directly improve the customer and consumer experience, drive breakthrough innovations and innovate how we operate.

As I mentioned in July, we've established global innovation hubs to orchestrate disruptive innovation platforms, one in North America and one in the Netherlands for our international markets. This fall, we are launching exciting new products into retail that are aligned with customer trends. This includes flavor-forward offerings from Alexia such as garlic and Parmesan crinkle-cut fries, and dill pickle season fries as well as expanding our licensed brands with Paw Patrol [ waffle ] fries and shaped tops.

And internationally, we continue the rollout of our really crunchy artisanal fries, which are performing exceptionally well. Before Bernadette provides a more in-depth review of the quarter, let's discuss the upcoming potato crop. We're harvesting and processing crops in our growing regions in both North America and Europe. Currently, we believe the crops in the Columbia Basin, Idaho, and Alberta are above historical average and in the Midwest are near average as growing conditions in all regions have remained generally favorable.

In Europe, growing conditions in the industry's main growing regions of the Netherlands, Belgium, Northern France and Germany have also been favorable, leading to an above-average yield forecast for the region. We continue to expect our potato costs in Europe to be flat to slightly lower than the previous year's fixed price contracts. As a reminder, in North America, we've agreed to a mid-single-digit percent decrease in the aggregate in contract prices for the 2025 potato crop.

We expect to realize the benefit of these lower potato prices beginning late in our fiscal second quarter. We'll provide our final assessment of the potato crops in North America and Europe when we report our second quarter results. I will now turn the call over to Bernadette to review the quarter and our outlook.

Thank you, Mike, and good morning, everyone. Our teams continue to perform at a high level as we began executing our new strategic plan and driving changes across the organization. In the quarter, we grew volumes, improved our manufacturing cost per pound and delivered strong cash flow. Starting on Slide 11. First quarter net sales were essentially flat, increasing $5 million, including a $24 million favorable impact from foreign currency translation. .

On a constant currency basis, net sales declined 1% compared with the prior year. Volume increased 6%, driven by customer wins and retention, led primarily by gains in North America and Asia. In North America, the rate of new customer volume scaled earlier than we planned. The total volume increase also included lapping an approximately $15 million charge taken in the first quarter of fiscal '25 related to a voluntary product withdrawal.

Turning to the industry. Restaurant traffic at several customer channels was flat in the quarter, including overall QSR traffic, while some are growing, including QSR chicken, QSR hamburger, however, was down low single digits and declined another percent in August. Restaurant traffic outside the U.S. has been mixed. Traffic in certain markets, including the U.K., our largest international market, declined 4%. Our customers continue to lean into value and menu innovation, including limited time offerings to drive traffic and meet consumer needs. Price/mix at constant currency rates was in line with our expectations, declining 7% compared with the prior year.

As a reminder, this includes the carryover impact of fiscal 2025 price and trade investments that went into effect in the second quarter of last year as well as ongoing support of our customers. It also includes unfavorable channel product mix within our segments. Looking at our segments. North America net sales declined 2% compared with the prior year, primarily due to lower net selling prices. Price/mix declined 7% and volume increased 5%, supported by recent customer contract wins and growth across channels.

In our International segment, net sales increased 4%, including a favorable $24 million impact from foreign currency translation. At constant currency rates, net sales were flat. Volume grew 6% in the quarter and price mix at constant currency rates declined 6%. This was primarily related to pricing actions in key international markets to support our customers. Our international segment remains well positioned for the long term, supported by new modern manufacturing facilities, a broad and innovative portfolio and an expanding global footprint.

In the first quarter, Asia, including China, led our volume growth, reflecting solid market performance. Growth was supported primarily by contributions from multinational chains. In Europe, we expect that a strong crop, soft restaurant market demand and increased competitive actions will continue to pressure price mix for the balance of the year. And in Latin America, we began shipping from our new facility in Argentina in early second quarter.

While we are actively onboarding customers, we expect it will take time before the facility reaches target utilization levels. We've seen competitive activity increase in Latin America, most notably in Brazil.

Moving on from sales. As expected, on Slide 12, you can see that adjusted gross profit declined. This was primarily due to unfavorable price mix. This was partially offset by higher sales volume and a decrease in manufacturing cost per pound due primarily to benefits from our cost savings initiatives and the benefit of lapping an approximately $39 million charge in the prior year related to a voluntary product withdrawal.

We're pleased with the progress we're making against our cost savings initiatives, and we remain on track to deliver fiscal 2026 savings targets. Our broader goal with our manufacturing initiatives, however, is to embed sustainable process improvements that will continue to enhance our manufacturing performance beyond the immediate efficiencies we are seeing. Partially offsetting these benefits was about $15 million of increased fixed factory burden absorption and about $4 million of incremental costs related to the start-up of the new production facility in Argentina.

While we anticipated a decline in gross profit this quarter, the decline was less than expected due primarily to stronger than anticipated sales volumes and incremental benefits realized from our cost savings initiatives. Adjusted SG&A declined $24 million versus the prior year quarter. The decline reflects benefits from cost savings initiatives, -- it also includes $7 million of miscellaneous income primarily related to an insurance recovery and property tax refunds that will not repeat in future quarters.

Equity method investments were a loss of $600,000 in the quarter, down from earnings of $11 million in the prior year quarter. This reflects the current lower rate of sales volume from our equity affiliate at lower prices, but also an unfavorable mix of sales. As a result, adjusted EBITDA was essentially flat with last year at $302 million. The favorable impact on net sales from currency translation was almost entirely offset by higher local currency expenses, particularly cost of sales in our global markets.

Turning to segment EBITDA performance on Slide 13. Adjusted EBITDA in our North America segment declined 6% or $18 million versus the prior year quarter to $260 million, primarily related to price and trade investments in support of our customers, which was only partially offset by higher sales volumes, lower manufacturing cost per pound and lower adjusted SG&A. Lower manufacturing costs per pound and adjusted SG&A both benefited from our cost savings initiatives.

We also lapped an approximately $21 million charge for the voluntary product withdrawal in the prior year. In our International segment, adjusted EBITDA increased $6 million to $57 million. This year-over-year improvement, primarily reflects the absence of last year's $18 million charge related to the voluntary product withdrawal, lower potato prices, cost savings from our cost savings initiatives, and a $4 million favorable impact from foreign currency translation.

These benefits were mostly offset by supporting our customers with price investments, increased competitive actions in certain markets and approximately $4 million of start-up costs associated with our new manufacturing facility in Argentina.

Moving to liquidity and cash flows on Slide 14. Our liquidity and cash position remains healthy. We ended the quarter with approximately $1.4 billion of liquidity comprised of approximately $1.3 billion available under our revolving credit facility and $99 million of cash and cash equivalents. Our net debt was $3.9 billion, and our adjusted EBITDA to net debt leverage ratio was 3.1x on a trailing 12-month basis.

In the first quarter of fiscal 2026, we generated $352 million of cash from operations, up $22 million versus the prior year quarter. Lower inventories were the primary driver of the increase. Free cash flow was strong at $273 million. As a reminder, our Focus to Win plan includes approximately $60 million of incremental cash flow from working capital, mainly from reducing inventory in both fiscal '26 and '27 or $120 million in total, we believe we're on track to deliver the fiscal '26 target.

Capital expenditures for the quarter declined $256 million to $79 million as we completed our production facility expansion projects. For fiscal '26, our capital spending is expected to be approximately $500 million, with approximately $400 million in maintenance and modernization and $100 million for environmental projects, which are mostly for wastewater treatment.

Turning to Slide 15. We remain committed to returning cash to shareholders. In the first quarter, we returned $62 million to shareholders. This included $52 million in cash dividends, and we repurchased $10 million of stock, leaving us with $348 million authorized under the plan. This brings the total cash we've returned to shareholders since the spin in 2016 to over $2 billion.

Our capital allocation priorities continue to be anchored in investing in the business. Its capabilities and areas where we are working to competitively differentiate Lamb Weston to execute our business strategy, while maintaining a strong balance sheet and opportunistically returning capital to shareholders with dividends and share repurchases.

Let's turn to our outlook on Slide 16. We are reaffirming our outlook for fiscal 2026. As a reminder, this outlook includes the contribution of a 53rd week with the additional week falling in the fourth quarter. We continue to expect revenue at constant currency rates in the range of $6.35 billion to $6.55 billion, which is a 2% decline to 2% increase.

We expect year-over-year volume growth behind customer momentum in both segments. In our North America segment, we expect volume to grow in both the first and second half of the year. Note that while volumes in the first quarter came in above expectations, this reflects the acceleration of new customer activity that we planned for in later periods.

In our International segment, we expect volume in the back half of the year to be essentially flat as we lap the new customer acquisitions from the prior year, and we continue operating in a competitive environment. We also continue to anticipate price mix will be unfavorable at constant currency. As of the end of the quarter, we have secured approximately 75% of our global open contract volume at pricing levels generally consistent with expectations.

As anticipated, unfavorable price mix will be more pronounced in the first half, reflecting the carryover pricing actions from fiscal '25. The effect is expected to moderate in the second half of the year, supported by new contracts signed this year. Our adjusted EBITDA guidance range remains at $1 billion to $1.2 billion. As a reminder, adjusted EBITDA now excludes noncash share-based compensation expense. It is available in the reconciliation of non-GAAP financial measures that accompanied the earnings release we filed this morning.

Despite the outperformance in first quarter, with only 1 quarter behind us, we believe it's prudent to maintain our guidance range. While we previously excluded any impact from tariffs, the range now incorporates tariffs in the balance of the year based on our latest view of enacted tariffs by the U.S. and other governments. Additionally, given the outperformance of the first quarter's gross profit from higher-than-planned volume, we expect gross profit margins in the second quarter to be relatively flat with the first quarter, due primarily to as expected, first quarter input cost inflation being flat to slightly down compared with a year ago due to the steep increase in open market potato prices in Europe in the prior year.

Going forward, beginning in the second quarter, we expect low single-digit inflation, including the benefit of this year's lower raw potato prices. We also expect higher factory burden from longer-than-expected planned maintenance downtime at one of our plants and additional startup expenses and factory burden absorption related to the start-up of Argentina planned to adversely affect our margin performance in our International segment in the second quarter.

Turning to adjusted SG&A. Our first quarter SG&A as a percentage of revenue was lower than our expectation for the full year. As I previously mentioned, the quarter included $7 million of miscellaneous income that will not repeat in future quarters. In addition, at year-end, we shared our plan to invest approximately $10 million of SG&A in innovation, advertising and promotion expenses to support our long-term strategic plan.

These investments are slated through the remainder of the year. While not in our guidance, the net sales and adjusted EBITDA, we are updating our tax rate guidance from approximately 26% to a range of 26% to 27%. We now expect the tax rate in the first half to be in the low 30s and the second half expectation remains in the low 20s.

We do not expect that the recently enacted U.S. federal tax legislation will have a material impact on our fiscal 2026 tax rate. And finally, our outlook reflects the progress we are making with our customers, the cost savings. We are on track to deliver and the early but positive results of the work by our team to execute focus to win within a competitive market. I'll now turn the call back over to Mike.

Thank you, Bernadette. In closing, we are acting with urgency to execute our focus doing strategy, including delivering our cost savings program. We have continued to drive strong volume growth and are pleased with the momentum we are seeing with our customers. Our team is focused on improving capital efficiency and increasing cash flows as our growth investments are complete and reducing working capital.

We have trend forward products coming to the market and the capacity and innovation to partner with our customers, and we are managing our business strategically, deploying resources and focusing our efforts in the areas of the market where we have the most differentiation, which we are confident will best position us for sustained success. Finally, we've reaffirmed our outlook for fiscal '26. We will now be happy to answer your questions.

[Operator Instructions] We'll go first to Andrew Lazar with Barclays.

Maybe to start, you noted that Lamb Weston has restarted you previously curtailed production line in the U.S. And I guess more broadly, I'm just curious how this squares with sort of the current supply-demand imbalance for the industry overall that you've talked about the last couple of quarters. And have you heard of any further industry capacity delays or outright cancellations beyond, I think, what you shared in the international sphere last quarter?

Yes. I appreciate it, Andrew. We needed to restart this line really to keep up with the demand signals that we're seeing on the business, the volume and the customers that we're bringing on board really to maintain the customer fill rates. So all good signals. You've heard me say, historically, this industry has been pretty rational. And our market intelligence would suggest that not all the new announcements are going to move forward at their original timing. You heard me talk about in July that we believe that some of those announced -- none of that announced capacity isn't going to move forward, has either been delayed or postponed or even canceled. .

The pace of new announcements has definitely slowed. I can't think of a new announcement that's been made since we reported earnings back in July. So I think we are seeing signs that this industry is being rational when it comes to capacity.

That's really helpful. And then I know, Bernadette last quarter, I think you talked about a low to mid-single-digit year-over-year decline in price/mix for the first fiscal half of the year. And I'm curious if that still holds. And if so, I guess, it would mean not inconsequential [ sequential ] improvement in price mix in fiscal 2Q, if I have that right.

Yes. No, thanks, Andrew. Foreign currencies have a little bit larger impact on our results in the first half on a constant currency basis, we're expecting mid- to high single-digit decrease in price and then moderating to low to mid in the back half of the year.

We'll go next to Tom Palmer with JPMorgan.

And thanks for the question. First, I just wanted to kind of clarify some of the gross margin commentary about more flat quarter-over-quarter. The items you noted seem to be more related to the international segment, like the rising potato costs and the plant start-up costs. Maybe just in North America, an update there, are we seeing more of kind of the normal seasonal increase to think about as we shift from 1Q to 2Q? Or are there kind of items there to think about as well?

Thanks, Tom. As it relates to North America, it is a more seasonal increase. The one thing, though, that we do need to consider as it relates to North America is the input cost inflation. We are going to see a little bit more in 2Q, but we'll also start seeing some of the benefit related to the lower potato prices come in. But you're absolutely right that much of the change is related to the International segment.

Okay. And then I just wanted to clarify on the tariff commentary that it's now included in guidance but was not previously. What is your tariff exposure and I think previously, you kind of discussed it as not being meaningful. Is there any update there?

Yes. So most of our tariff exposure relates to any import of palm oil or other ingredients. And right now, on an annualized basis, we would expect it to be about $25 million. We primarily bring that in from Indonesia and Malaysia. There is going to be a vote in March is my understanding that it could be enacted that the Indonesia tariff rate would go away. But that's yet to be known. So we've gone ahead and we've included the full amount for that palm and other ingredients in our guidance for the remainder of the year.

Our next question comes from Peter Galbo with Bank of America.

Bernadette, understanding kind of some of the nuance on the second quarter gross margin. But I guess if I just look at the first quarter performance, it wouldn't be all that different from history. I think it was a roughly flat gross margin Q-on-Q versus 4Q, which is kind of what the old Lamb Weston would have been even pre-COVID. So I think that the seasonality may be follow. So I guess the question is, 2Q aside, should we be thinking about some of the historical seasonality on the gross margin line returning in the second half, at least as it relates to 3Q and 4Q. That would just be helpful as we kind of model out the rest of the year.

Yes, that's exactly right, Peter. Based on the strength that we saw in Q1, we do expect gross margin to be flat -- about flat with Q2. And then similar to historical periods, we expect a seasonal step up in Q3 and then a seasonal decline in Q4.

Okay. Great. And Mike, I just wanted to touch on something you brought up in the slides, noting on, I think, expanding the usage of brokers in North America. Historically, the strength of Lamb Weston was truly the direct sales force. I think it was a competitive advantage maybe you had that some of your competitors didn't. So I just want to understand the change in philosophy or the change in thinking and expanding out to using a broker network how that's being, I guess, received internally by the direct sales force. I mean, again, it's a nuance, but it seems like a meaningful change to how you've operated versus history.

Yes. I appreciate the question, Peter. I think it's really important, and I want to make sure I'm clear on this. We are maintaining that direct sales force. So that, to your point, Peter, that team has been very helpful to this business over the course of the last several years as we move to that model. We've seen success with it. And this is now going to give them opportunity to continue to focus on the areas where they've been successful.

We are augmenting that direct sales force with a broker in some of our underpenetrated channels, some of the areas that we haven't spent time focusing on in the past. The sales team, the leadership team on that side is super supportive and excited about it because it actually allows them to really focus on the areas that they have been focusing on and gives us a chance to look at some potential upside opportunity that we haven't really spent a lot of time on over the last several years.

We'll go next to Max Gumport with BNP Paribas

I was hoping you could unpack the contribution of customer [indiscernible] volume growth in North America, the first just if you'd be able to quantify that roughly in point terms in terms of what that drove? And then these gains really starting to get called out in the fiscal 4Q of '25. Is there any reason why that benefit doesn't stick into 2Q and 3Q?

And then how would you think about that progressing from there?

The team is working hard to pick up new customers. And as I said before, I think we're driving a whole another level of customer centricity here in our organization. As Bernadette mentioned earlier, we've had some customers that we have converted earlier than expected, meaning that some of those customers started placing orders and shipping with us in Q1 that we didn't expect to necessarily happen until Q2. So that's one reason you're seeing the larger step-up in Q1 on volume versus what we expected.

Yes. And that relates primarily to the North America segment. That's exactly right, Mike. And then as it relates to the International segment, keep in mind that we were lapping the prior year voluntary product withdrawal, that we won't see going forward.

Okay. And then just coming back to the 1Q versus 2Q gross margin comments [ that has been ] asked. But 1 other way I want to just get my head around it would be clearly coming into the year, you expected a return to the normal cadence, it would have been a pretty meaningful a few hundred basis points, I believe, step-up from 1Q to 2Q. I think it's fair to say 1Q gross margin came in a couple of hundred basis points above what you might have expected. And I realize you now expect inflation to accelerate from 1Q to 2Q. Has your view on the absolute gross margin has it changed [indiscernible] because of the timing of inflation? Or is it really just a matter of a meaningfully better than expected 1Q gross margin?

Yes. So thanks for the question. For the year, we're expecting to be fairly close to what we had originally expected. And we didn't guide on gross margin per se, but you're exactly right that the cadence of the gross margin and the increases and decreases, the primary change here is really that Q1 came in better than expected, and we're expecting more of a flat quarter-over-quarter gross margin between 1Q and 2Q.

And our next question comes from Matt Smith with Stifel.

Mike, could you talk about the impact of restarting the curtailed line in the second quarter? Should we think of there being higher fixed cost absorption as the line comes on? Or is that a cleaner start-up process relative to when you open a new plant? And then how do you think about that line going forward? Do you expect production to be maintained on that line? Or have you learned that you can turn these off and turn them on based on different times of the year and when it's most efficient to use that capacity?

Yes. Great question, Matt. Let me just ground everyone and remind everyone, we curtailed more than just 1 line when we did our curtailments. So this is one of those lines that we're bringing back on. During the course of the time that line was down, we would kind of kind of bump -- the kind of what we call it, bump start the engines and the pumps and kind of keep things looped up, and so it's easier to start these lines than starting a new production facility from scratch.

There's not a lot of cost to bringing up this new line. We fully anticipate that we're going to continue to run this line. That's what our demand signals are telling us. And again, we have other curtailed lines that we have positioned should we see continued growth and momentum in the business that we'll be able to action against into the future.

Yes. And the only thing I'd add to that is, so for the North America segment will start to moderate at the end of the second quarter when we start up that line from a fixed factory burden perspective, but we'll see a larger impact internationally with the start-up of Argentina and then the higher factory burden from the longer-than-expected planned maintenance downtime in Q1.

And as a follow-up, could you talk about the phasing of cost savings in fiscal '26, I think cost savings came in above your expectation in the first quarter, but you still expect to be on track for the $100 million run rate in fiscal '26 or exiting the year. Are you raising your expected cost savings for the year? Or is it just more flowed through in the first quarter than you anticipated? Or maybe it was a larger contribution from the carry in benefits from last year's restructuring savings? Just a little clarification out there.

Sure. I'd be happy to provide some color on that. So you're right, we did drive cost savings a bit faster, which has about 2/3 of the benefit in the back half of the year when we initially announced the plan. There's still many priorities that we need to deliver and we'll continue to provide updates as the year progresses. But for now, we're on track to deliver the $100 million target that we set for fiscal '26.

And again, about 2/3 of that is expected to affect gross profit and about 1/3 is expected to affect SG&A.

And we'll go next to Scott Marks with Jefferies.

First thing I want to ask about is, you gave some commentary earlier about some of the business wins you've had expanding some business with QSR customers, expanding in C-stores, another away-from-home categories. Just wondering if you can speak a bit to what's been the driver of these wins? Has it been more of the price support that you're willing to invest behind it or maybe some other factor that's helping you kind of gain this business?

Yes, I appreciate the question. A lot of it has to do with how we're engaging in our customers and a change from how we were in the past. We're spending a lot of time making sure that we're doing the right joint business planning, and that's not just lining up our salespeople to the customer. That's a complete cross-functional approach where our supply chain organization, our marketing organization and others are spending time with these customers and really understanding what they are looking for in a valued partner, and we're now delivering that.

We're seeing customers have a renewed focus on service, quality and consistency rather than just price when it comes to North America. And I think we're seeing that. When you hear -- Bernadette mentioned that we're through 75% of our contracting for this fiscal year with customers. That's at a very high retention rate, which we're excited about. And then obviously, bringing on some of those new customers is providing some tailwinds for the business.

Understood. And then maybe just on the traffic environment. You made some comments about QSR traffic, I think, was flat overall with some puts and takes across the different different subsegments within. Just wondering if you can kind of share just overall backdrop, what you're seeing in the U.S., internationally and what you're hearing from customers as we move through the rest of this, I guess, calendar and fiscal year.

Yes. QSR traffic was flat in the period. As Bernadette mentioned, burger QSR traffic was down. That was after several months of sequential improvements, albeit still down. Chicken QSR was up, which is a great mix opportunity for us. We're intrigued by some of the offerings that we're seeing from some of our customers in the marketplace in terms of [ volume mills ] and excited to see how those are going to perform into the future. We have great customers. They have really loyal consumers, and they're looking to drive traffic into their restaurants and in their stores.

Yes. And Mike, if I could just add on the international side, QSR traffic being a bit mixed and the U.K., I think I mentioned our largest market. It was down 4%. And there were some other markets, though, that were up slightly, France, Germany, Spain, but there were other markets like Italy that was down. So a little bit mix there on the international side.

And we'll go next to Robert Moskow with TD Cowen.

This is Jacob Henry on for Rob. Just 1 question for me. I'm wondering if you can provide any additional details on the pricing of the contracts you signed this quarter. Just curious how those came in versus expectations. I know you guys are winning a good amount of new business, but curious if you are finding you have to discount maybe more than you expected.

Yes. I appreciate the question. As I said earlier, I mean, we're seeing in North America that customers are having that renewed focus around service quality, consistency and the innovation that we're providing and all that customer centricity that I talked about earlier. It's not just price. Price in North America has been in line with our expectations. That being said, we have supported customers in this challenging environment.

We finished -- like we said, 75% of those contracts are -- have gone through the normal course. Another 25% is kind of the normal kind of process that we go through, and we'll start to see those wrap up through the end of the calendar year. I think we said in the past last year, about 2/3 of our agreements came up for renewal. We had about 1/3 of those that came up for renewal this year.

I'd say when you think about the international markets, we continue to see a little bit more competitive dynamic, some of that's related to new capital. Some of that's related to raw pricing in some of the markets. Some of that's related to just normal competitive dynamics. And in Europe, we talked a little bit about the crop and where [indiscernible] headed with those contracts. So again, all as expected, -- and we continue to, again, meet with our customers and show them a differentiated Lamb Weston when it comes to our customers.

Yes. And we focused a lot on price. And I think the only other thing I'd add in North America as it relates to mix is that we are seeing a little bit of a change in mix in some of our channels, particularly in our retail channel with more focused towards the private label volume versus branded volume.

Our next question comes from Steve Powers with Deutsche Bank.

Mike, following up on your comments kind of throughout the call on just the importance of customer service and the efforts that you've all been able to make in terms of the supply chain, enabling better customer service delivery on your part. I guess when you think about the overall scorecard, and I guess I'm focused mostly on North American this question, but product quality, order fill rates, just all the different dynamics of customer service. Is that scorecard kind of at this point, universally green in your estimation? Or there are areas where you still see room for further improvement that are priorities for the organization?

Yes, I won't go into detail, Steve, in terms of what the scorecard and what we're tracking. But we do track our customer engagement in some of those key metrics on a regular basis. And we still have opportunities. And I think that's where my focus has been over the last several months is getting out in front of these customers and better understanding where we have opportunities and how we're going to address those moving forward. In some ways, we've addressed that through some of the structural changes and personnel changes.

In some ways, we've addressed that through the innovation and some of the items that we're coming out with. But again, we're having those conversations. And listen, we're never satisfied. We always want to make sure that we're delivering a higher level of commitment and service for our customers, and we're going to continue to do that.

And then Bernadette, I don't -- apologies if I missed this, but just on the the plants, the new facility in Argentina, how long do you expect that to take before it is up to target utilization levels? I'm not sure I caught that. And I don't know how the the competitive activity you called out in Brazil impacts that, just your outlook for the ramp-up in that facility.

Yes. And maybe before Bernadette jumps into that one, let me just update the group. We actually have that plant now operational. And we're actively qualifying products for our customers and transitioning kind of ramping things up. That does take some time but it is operational, and much of that capacity will be exported to the Brazilian market in that area. .

Okay. Is there a time line to kind of hit target utilization at this point?

Yes, it takes time. I mean if you think about our other lines that we've started up, these aren't -- we don't fill up the lines on day 1. And like I said, it takes some time to condition the lines, as we call, shake them down a bit and bring those new customers on and over. It will take us some time to bring that line up to speed.

And we'll move next to Marc Torrente with Wells Fargo Securities.

Just first on SG&A, came in a bit lower than expectations. Part of that was the nonrecurring $7 million and then maybe some timing shift in strategic investments. So how should we think about the underlying run rate of SG&A going forward? And any phasing of net cost savings ahead?

Yes. Thanks, Mark. In terms of I think about 1/3 is what we've shared before of the savings are expected to benefit SG&A in fiscal '26 and that's off a $100 million base. And then you're exactly right. The benefit of cost savings in the first quarter did include the $7 million of onetime benefits that we won't see going forward. it will be affected by our cost savings benefits. But then keep in mind, we've got the incremental costs associated with normalizing our stock compensation and then the $10 million in strategic investments that are timed for the latter half of this fiscal year.

Okay. Got it. And then on new customer wins, they materialize a bit quicker than anticipated, which pulled forward some of the expected volume growth in the year. Maybe could you talk to visibility and other new customer wins that have yet to start and ability to sustain volume momentum ahead even if, I guess, traffic across the industry remains muted. .

Yes. We're not going to speak to any future customer wins that are coming up. I think the fact that we restarted the curtailed line in American Falls to make sure that we have the right customer fill rates and support of customers the right way is a great kind of bread crumb to how we're feeling about the business.

Yes. And I think it's important to note that while volumes in the first quarter did come in above expectations in North America that does partly reflect a timing shift in the ramp-up of those new customers that was planned for later periods. So that was planned in our original guidance. It just came a little bit faster than expected.

And we'll move next to William Reuter with Bank of America.

I just have 2. The first on the new customer wins, is some of this creating customer-specific products that may not have margins that are as high as your existing customers? I guess how is the profitability of the new additions?

Yes. I'm not going to speak to the profitability on specific customers. Just know that we are picking up new customers. We're doing it the right way and with pricing that makes sense for the P&L moving forward.

Got it. And then just secondarily on the CapEx going forward, $500 million this year. When we look to out years, I think you mentioned $400 million this year of maintenance and $100 million of environmental. Should that be the range that we should be thinking about over the next 2 or 3 years subsequently?

Yes, that's in the general ballpark. I think we previously shared that we've got a 5-year plan with the environmental expenditures, currently planning for about $100 million per year over the next 5 years. But again, we're continuing to look for ways that we might have opportunities to extend deadlines or work on other areas to reduce the cost of that compliance.

And ladies and gentlemen, that concludes our Q&A session today. I'll turn the conference back to Debbie Hancock for any additional or closing remarks.

Thank you, Lisa, and I want to thank everyone for joining us today. The replay of the call will be available on our website later this afternoon. Have a great day.

That concludes our call today. Thank you for your participation. You may now disconnect, and have a great day.