S&P Downgrades Lamb Weston to BB on Elevated Leverage
Key Facts
S&P downgraded Lamb Weston's credit rating from BB+ to BB on October 20, 2026, citing elevated leverage, and maintained a stable outlook. The agency published its announcement at 17:31 Eastern Daylight Time, according to its official list of rating announcements. According to Investing's coverage of the rating action, the agency expects the company's adjusted leverage to remain near 3.7 times through fiscal 2028. That level exceeds the agency's previous leverage expectations, according to the same coverage, which attributed the forecast that leverage would remain at that level to S&P. The action thus combined a downgrade driven by leverage with an unchanged stable outlook.
The rating action followed quarterly results showing continued sales growth alongside a decline in the adjusted earnings measure the company uses in its financial disclosures. Lamb Weston said in a filing with the U.S. Securities and Exchange Commission that net sales rose 1% from a year earlier to $1.67 billion in its latest reported quarter. Net income for the same quarter was $29 million, according to the filing, while adjusted earnings before interest, taxes, depreciation and amortization fell 5% year on year. This earnings measure is adjusted according to the company's definition, and the company reported its decline alongside growth in net sales compared with the year-earlier quarter. In an earlier investor announcement, Lamb Weston had scheduled the release of its fiscal 2027 first-quarter results for October 6, 2026.
By segment, North American sales volumes rose 7% in the latest reported quarter, according to the company's earnings filing, while sales in the international segment declined. The international segment recorded an 8% decline in net sales from a year earlier, according to the same filing. Lamb Weston identified low plant utilization among the factors driving up manufacturing costs in its international operations during the period. Chief Executive Mike Smith said the company faced "unexpected inflationary pressures" in key input and freight costs, discussing cost pressures in his presentation of the results. Smith added that the company was working with suppliers to address these pressures and using hedging where possible, according to his remarks in the financial filing.
Against the backdrop of the rating action, cumulative pretax restructuring charges totaled about $332 million through the first quarter of fiscal 2027, according to Investing's coverage. The report said the net earnings benefits from these measures remained limited despite the cumulative restructuring charges incurred through that period. On cash generated by the business, Lamb Weston said in its financial filing that cash from operating activities totaled $235 million in the latest reported quarter. That cash declined by $117 million from a year earlier, according to the annual comparison in the company's earnings filing. The decline in operating cash flow, alongside limited earnings benefits from restructuring, forms part of the financial backdrop for the company whose rating the agency downgraded because of elevated leverage.
In its outlook for the current fiscal year, Lamb Weston raised its guidance range for adjusted earnings before interest, taxes, depreciation and amortization, according to its filing with the U.S. Securities and Exchange Commission. The company set the new lower end of the range at $1.125 billion and the upper end at $1.215 billion for this adjusted earnings measure. The guidance covers the entire current fiscal year, while the reported sales, net income and cash flow figures relate to the company's quarterly performance. The increase in the range coincided with the inflationary pressures Smith described in key inputs and freight, as well as efforts to work with suppliers and use hedging where possible. S&P's forecast of persistently elevated leverage extends through fiscal 2028, according to Investing's coverage, beyond the period covered by the company's current earnings guidance.
On the company's upcoming calendar, shareholders of record at the close of business on November 6, 2026, will be eligible for the quarterly dividend announced by Lamb Weston, according to its investor statement. The company set December 4, 2026, as the payment date for eligible shareholders, placing payment after the announced record date. On its business plans, Lamb Weston intends to complete its prioritization of markets and sales channels in the coming months, according to its earnings filing. It also plans to present a roadmap to enhance shareholder value at its investor day scheduled for early calendar 2027, according to the same filing. The planned roadmap presentation falls within the timeframe the company set for communicating with investors about enhancing shareholder value, following completion of its work on market and sales-channel priorities.