Lamb Weston (LW) Q3 2025 Earnings Review: Growth Returns After a Rough Q2

Lamb Weston delivered solid earnings this quarter, though potential tariff impacts have yet to be factored into their outlook

🚀 Q3 2025: A Welcome Turnaround

Lamb Weston’s Q3 2025 earnings brought some much-needed relief to investors. Let’s look at the year-over-year and sequential comparison with Q2.

Metric	Q3 2025	Q2 2025
Volume Growth	+9%	Decline
Net Sales Growth	+4%	-8%
Adjusted EBITDA Growth	+6%	Guidance cut by $190M

Net sales comparison shows slight improvement.

Despite tough macro conditions and soft restaurant demand, Lamb Weston managed to grow both volume and sales in Q3—signaling that their efforts to win new business and improve supply chain continuity are starting to pay off.

📊 Guidance: More Transparency in the Forecast

Lamb Weston reaffirmed its full-year fiscal 2025 outlook, but we’ve now got more specifics to work with:

• Adjusted EBITDA is projected between $1.17B and $1.21B

• Adjusted gross margins expected to decline 700 basis points in Q4 (mirroring prior year seasonality)

• Effective tax rate for FY25 is estimated at ~28%, with a mid-to-high teen rate in Q4

• The company will provide FY2026 guidance in Q4, as per their usual cycle

Guidance has been reaffirmed, however tariffs have not been factored in

Importantly, the outlook does not account for potential impacts from tariffs, citing uncertainty around U.S. trade policies.

Tariffs: A Potential Storm Cloud

Lamb Weston hasn’t priced in any effects from possible Trump-era-style tariffs returning to the global trade stage. With speculation about tariffs increasing once more, this might become a significant narrative in the upcoming earnings cycle. For now, LW is in wait-and-see mode.

Before turning to our outlook, I want to address tariffs. Given the timing of yesterday's announcement and the uncertainty, we have not included any impact from tariffs in our financial outlook. As it relates to our business, we are a global business, which allows us to supply most of our customers with local/regional supply.

As it relates to US imports of frozen French fries, a new universal baseline tariff of 10% plus an additional country-specific tariff for select trading partners will be assessed. This tariff relates to all US imports except USMCA-compliant imports, which includes French fries imported from Canada. As such, the products we manufacture at our one plant in Canada and import to the US are exempt from the new tariffs.

We source approximately 5% of our inputs from Canada, primarily edible oils and natural gas, which are also USMCA compliant and therefore exempt from the tariffs.

🧾 Margin Pressure: Breaking Down the Squeeze

Here’s what’s dragging Q4 margins lower:

• 260 bps from seasonal trends

• 330 bps from higher fixed costs due to production curtailments

• 330 bps from material cost increases (edible oils, packaging, ingredients)

• 100 bps from miscellaneous cost pressures

  
  

🏗️ CapEx and Capital Allocation: More Focus, Less Spend

LW is tightening the reins on capital spending to align with softer demand:

• FY2025 CapEx remains at $750M, down $250M YoY

• FY2026 CapEx estimated at $550M, split into:

  • $400M for modernization & maintenance

  • $150M for environmental projects (mostly wastewater treatment)

The company also repurchased $100M in shares, with $458M still available under their current repurchase authorization.

CAPEX is down and expected to be within guidance range.

🥶 Inventory & Supply Chain Optimization

Inventory was an issue, but LW is working it down fast:

• Production curtailments to reduce cold storage inventory

• Exiting surplus warehouse space

• Supply chain overhaul under a new global leader

• Data-driven inventory planning to avoid unnecessary SKUs

This effort directly supports their cost-control strategy and boosts gross margin potential over time.

📈 Key Performance Metrics Driving Lamb Weston’s Business Forward

Metric	Detail
Adjusted EBITDA Guidance	$1.17B – $1.21B for FY2025
Adjusted Gross Margin Decline	~700 bps in Q4 expected
CapEx FY2025	$750M
CapEx FY2026 Estimate	$550M total ($400M modern., $150M env.)
Share Buybacks	$100M in Q3; $458M remaining authorization
Private Label	Launched, performing well across retail channels
Price Mix	Declined 4–7% YoY due to price investments
Supply Chain	New leadership, plant curtailments, and smarter inventory

Final Word: Progress with a Side of Caution

Lamb Weston’s Q3 performance shows clear progress. Volumes are up, sales have rebounded, and they're reaffirming full-year guidance. Their customer-first approach and operational reset are laying the groundwork for a more efficient and competitive business.

But challenges loom:

• Q4 margin pressure remains a key concern

• Tariff uncertainty could impact future costs

• Consumer demand softness isn’t going away anytime soon

All said, the fries are crispier this quarter—but keep an eye on the heat in the kitchen as the macro environment simmers.

FAQs

Q: Is Lamb Weston turning things around?

A: The Q3 numbers say yes—volume and sales are back on track, and guidance is steady. But margin pressure and demand softness still linger.

Q: How are they dealing with excess inventory?

A: Through aggressive production curtailments, warehouse exits, and supply chain optimization.

Q: Will tariffs impact future performance?

A: Possibly. The company hasn't factored them into guidance yet, but they’re monitoring the situation closely.

Disclaimer:

The information contained in this article is provided for general informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content reflects the personal opinions of the author based on publicly available information at the time of writing and should not be relied upon as the basis for any investment decisions. Earnings reviews may contain forward-looking statements that are inherently uncertain and subject to change.

Readers are strongly encouraged to conduct their own research and due diligence, and to consult with a qualified financial advisor or licensed professional before making any investment or trading decisions. The author and publisher make no representations or warranties, express or implied, as to the accuracy, completeness, or reliability of the information provided and accept no liability for any loss or damage arising directly or indirectly from the use of or reliance on the information herein.