Lamb Weston Holdings Inc (LW)

Return on sales

The profitability ratios of Lamb Weston Holdings Inc. demonstrate notable trends over the recent periods. The gross profit margin has generally improved from around 22.87% on August 28, 2022, reaching a peak near 30.81% on February 28, 2023. However, the gross margin subsequently declined, with the latest reported figure at 21.68% as of May 31, 2025. This fluctuation indicates periods of enhanced efficiency or pricing power, followed by compression possibly attributable to increased costs or competitive pressures.

Operating profit margin exhibited a similar upward trajectory, increasing from approximately 12.84% in late August 2022 to a high of 21.27% at the end of February 2023. Following this peak, the margin declined gradually, settling around 10.31% as of May 31, 2025. The decline in operating margins suggests rising costs or pressures on margins that are not fully offset by revenue growth or efficiency gains.

Pre-tax profit margins also reflect a peak in late February 2023 at 16.69%, followed by a downward trend, with the latest figure at 8.41% on May 31, 2025. The net profit margin experienced a similar pattern, rising from approximately 9.18% in August 2022 to a high of 22.86% in late May 2023, but then decreasing sharply, reaching about 5.54% in May 2025. This decline in net profitability points to increased expenses or margin compression at various stages of the income statement.

Overall, the profitability ratios show an initial improvement through early 2023, likely driven by higher margins or better operational efficiency, but subsequently deteriorate, indicating increasing challenges in maintaining earlier profitability levels. The decline across multiple margins suggests that while Lamb Weston managed to optimize margins initially, external or internal cost pressures have recently exerted a downward effect on the company's profitability.

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Return on investment

Analysis of Lamb Weston Holdings Inc.'s Profitability Ratios (up to February 2025):

The provided data indicates notable fluctuations in the company’s profitability metrics over the period from August 2022 through early 2025.

Operating Return on Assets (Operating ROA):
This ratio measures the efficiency of the company's core operations in generating income relative to its total assets. Starting from approximately 12.76% in August 2022, the Operating ROA demonstrated an upward trajectory, peaking at around 21.15% in late February 2023. This suggests a period of enhanced operational efficiency in late 2022 and early 2023. Subsequently, there was a decline, with the ratio decreasing to about 11.85% by the end of May 2024, and further contracting to approximately 9.32% in early 2025. The declining trend indicates a reduction in operational efficiency or increased asset base not matched by proportionate earnings growth.

Return on Assets (ROA):
ROA, reflecting the overall profitability relative to total assets, similarly rose from 9.13% in August 2022 to a peak exceeding 22% in November 2023. This suggests periods where the company was effective in converting assets into net income. Post-November 2023, the ROA exhibited a downward trend, reaching approximately 4.83% in May 2025. The decline implies potential challenges in translating the asset base into earnings, possibly due to increased expenses, competitive pressures, or changes in revenue streams.

Return on Total Capital:
This ratio, indicating the efficiency of all invested capital (debt and equity), reflects strong performance initially, with values over 100% in late 2022 and early 2023, peaking at near 150% at the end of November 2022. These elevated figures suggest substantial returns on capital during this period. The ratios then declined markedly, approaching approximately 38-40% by mid-2024, suggesting decreasing efficiency or profitability in deploying total capital.

Return on Equity (ROE):
ROE exhibits high initial levels, reaching over 100% in late 2022 and early 2023, which signifies highly favorable returns to shareholders during that period. Throughout 2023 and into 2024, ROE diminished significantly, falling to around 20% by early 2025. The reduction indicates lower profitability margins on shareholders’ equity, potentially attributable to increased equity base, profit pressure, or other capital restructuring factors.

Overall Trends and Implications:
Initially, Lamb Weston demonstrated strong operational efficiency and profitability across all measured ratios, especially notable in late 2022 and early 2023, with peak ROA and ROE figures. However, from mid-2023 onward, a consistent downward trend emerged across all profitability metrics. This indicates a deterioration in the company's ability to efficiently generate profits from its assets, capital, and equity. Factors contributing to this shift could include market saturation, rising operating costs, competitive dynamics, or strategic adjustments.

In summary, while Lamb Weston's profitability ratios showed robust performance in late 2022 and early 2023, recent periods suggest a moderation or decline in profitability, pointing to potential challenges in operational execution or market conditions affecting overall efficiency and shareholder returns.