Starboard delivers letter to Lamb Weston’s board of directors

Starboard Value announced that it has delivered a letter to Lamb Weston’s (LW) Board of Directors. “Lamb Weston is a high-quality business that the market historically rewarded with a premium valuation. Today, however, that premium has been eliminated as prior management’s missteps led to market share losses, declining earnings, and an erosion of investor confidence. While Lamb Weston has made meaningful progress in improving volume trends over the past year, the central issue remains the same: earnings have not grown and investors lack confidence in the path to normalized earnings and sustainable growth. The Company is at a critical juncture and must clearly articulate a path forward. We believe the appropriate forum to do so is an Investor Day, as it allows the Company to reset the narrative, clearly communicate its path to durable earnings growth, and rebuild investor confidence… the Company must then outline a clear path to restoring earnings to a normalized level and, importantly, to driving sustainable growth from there. The first step is to reset earnings to a normalized level. We believe the Company should attain 25% adjusted EBITDA margins by FY2029 through a balanced mix of profitable revenue growth and cost reductions… We believe there are meaningful cost reduction opportunities that can help drive the Company toward the FY2029 25% adjusted EBITDA margin target. While the Company’s announced $250 million cost savings program is a starting point, it has been primarily focused on cost of goods sold… Resetting earnings alone is not sufficient. The Company must also demonstrate its ability to deliver sustained long-term earnings growth after earnings are reset to normalized levels. As such, we believe Lamb Weston should clearly articulate a long-term earnings framework, consistent with best-in-class consumer companies… Most importantly, management must clearly communicate these targets and the benefits of the Company’s position in the industry. Management needs to earn back the trust that they have lost and convince shareholders that the team understands how to maintain a high-quality business and create value. Rebuilding credibility with shareholders will require consistent articulation of strategy, along with disciplined execution. “