Potato products company Lamb Weston (NYSE:LW) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 4.3% year on year to $1.52 billion. The company’s full-year revenue guidance of $6.4 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $1.10 per share was 26.2% above analysts’ consensus estimates.

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“As a result of the actions we took in early fiscal 2025 to drive operational and cost efficiencies, we closed the quarter with sequentially improved volume trends and profitability metrics that were in line with our previously updated fiscal 2025 outlook,” said Mike Smith, Lamb Weston’s president and CEO.

Company Overview

Best known for its Grown in Idaho brand, Lamb Weston (NYSE:LW) produces and distributes potato products such as frozen french fries and mashed potatoes.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $6.39 billion in revenue over the past 12 months, Lamb Weston carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Lamb Weston grew its sales at an impressive 17.3% compounded annual growth rate over the last three years as consumers bought more of its products.

This quarter, Lamb Weston reported modest year-on-year revenue growth of 4.3% but beat Wall Street’s estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Lamb Weston generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Lamb Weston’s average quarterly volume growth was a robust 9.5%. In the context of its 17.1% average organic revenue growth, we can deduce that the company’s gains have been evenly split between price increases and more customers purchasing its products.

In Lamb Weston’s Q1 2025, sales volumes jumped 9% year on year. This result was in line with its historical levels.

Key Takeaways from Lamb Weston’s Q1 Results

We were impressed by how significantly Lamb Weston blew past analysts’ EBITDA expectations this quarter. We were also glad its gross margin outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 3.6% to $56.09 immediately after reporting.

Sure, Lamb Weston had a solid quarter, but if we look at the bigger picture, is this stock a buy? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.