Good day, everyone and welcome to the Lamb Weston’s Third Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Dexter Congbalay, Investor Relations of Lamb Weston. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston’s third quarter 2017 earnings call. This morning, we issued our earnings release which is available on our website lambweston.com. Please note, that during our remarks, we will make some forward-looking statements about the Company’s performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our filings with the SEC for more details on our forward-looking statements. In addition, some of today’s prepared remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release. With me today are Tom Werner, our President and Chief Executive Officer; and Rob McNutt, our Chief Financial Officer. Tom will provide an overview of the operating environment and our overall performance, and then hand it over to Rob to provide the details on our third quarter and year-to-date results as well as on our debt and cash flow. Tom will then highlight our capital allocation priorities and provide some comments on our fiscal 2017 outlook before opening up the call for questions. With that, let me now turn the call over to Tom.

Thanks, Dexter, and good morning everyone, and thank you for joining Lamb Weston’s Q3 earnings call today. Let me start by saying that we are pleased with our third quarter results and we remain on track to deliver on our full-year targets. The operating environment in the quarter was largely a continuation of what we’ve been experiencing over the recent past with overall solid demand for our frozen potato products across our customer base in both domestic and export markets, high levels of capacity utilization across the industry and modest cost inflation in our manufacturing base in North America. In this environment, we've continued to execute well across our organization with very close coordination between our supply chain and our commercial teams to ensure we provided our customers the products they need on time. In the third quarter, as we have over the past year, we continue to operate our manufacturing plants at a very high utilization rate and our overall capacity across the industry has remained tight. In the quarter, we also overcame the impact of some difficult winter weather in the Pacific Northwest where our factories and some of our finished good warehouses are located. While we did experience some challenges, I want to thank our supply chain team for minimizing the impact on our customers. This tight capacity environment has influenced our approach to the marketplace. Our commercial teams have done a great job taking actions to improve both product, and customer mix, as well as continued execution of the pricing actions we have taken earlier this year. This along with modest volume gains drove our topline and profit growth in the quarter. Specifically while volumes grew just under 1% in the quarter, net sales were up 5% due to a higher price mix while gross profit…

Thanks, Tom. Good morning, everyone. Let me first say how excited I am about this opportunity to be a member in Lamb Weston team. In my short time here, I've been impressed with my colleagues' depth of knowledge of the industry and their passion for the Company. I'm excited about building our future together. As Tom noted, we're pleased with our third quarter and year-to-date results. Net sales were $769 million for the quarter up 5% and in line with our single-digit growth target for the year. Price mix drove most of the growth contributing four of the five points and reflecting the current favorable industry environment. This is in line with our expectation that price mix would accelerate a bit from the 2% growth we posted in the first half as we continue to realize the impact of pricing actions taken earlier this year, along with continued improvement in customer and product mix. Volume grew 1%, again this is consistent with our expectation that volume growth would moderate from the 3% that we saw on the first half as we took some production line to down for routine maintenance. Through the first nine months sales increased 5%, which was a good balance of price mix up 3% and volume up 2%. With respect to earnings, as Tom mentioned, gross profit was up 14% for the quarter and gross margin expanded by 200 basis points to nearly 27%. Similar to what we saw in the first half, the benefits of positive price mix flow through to the bottom line. While potato costs on a per pound basis were essentially flat, other manufacturing costs on a per pound basis increased in the low single-digits. This was largely due to higher edible oil and transportation costs. We anticipate this inflation trend to…

Thanks Rob. I wanted to touch briefly on our capital priorities and then our outlook for the balance of the year. As we've stated previously, we believe our balance sheet and cash flow will support a balanced capital allocation policy based on returns and executed with discipline. Our priorities remain, first, to invest in growth both organic and through M&A and as you can see our current capacity expansion projects attest to our commitment to invest in and support growth. Second, we’ll continue to support our dividend, we currently pay a $0.75 dividend on an annualized basis. And third, given that we are making good progress towards the low end of our leverage target through EBITDA growth as well as our elevated CapEx need this year, we don't anticipate paying down debt beyond what is required in the near-term. We will evaluate alternative uses of excess cash as we continue to grow and return to more normalized CapEx level and will provide more thoughts on this down the road. Finally, turning to your outlook, with our solid third quarter results, we are on track to deliver the targets that we provided on our last earnings call. We continue to expect net sales to grow mid single-digits with a good balance between price mix and volume for the year. We also continue to anticipate adjusted EBITDA including unconsolidated joint ventures to increase at a mid-teens rate. This reflects strong adjusted operating income growth partially offset by a lower contribution from our unconsolidated joint ventures. In addition, we continue to see total interest expense of about $60 million including a significant year-over-year increase in the fourth quarter. For adjusted diluted EPS, we continue to expect it to be in the range of $2.20 to $2.28 per share. As so you can see we delivered a strong third quarter and year-to-date results. The Lamb Weston team is executing with excellence in a favorable operating environment and we remain on track to deliver on our full-year commitments. We are taking the appropriate actions to drive sales growth, improve mix and expand margins in the near-term, while continuing to invest and strengthen our capabilities to support our growth and our advantage cost position over the long-term. I want to thank you for your interest in Lamb Weston and now we're happy to take your questions.

Thank you. [Operator Instructions] Our first question will come from Andrew Lazar from Barclays.

Good morning, everybody.

Good morning, Andrew.

Hi, two questions from me, if I could. I guess, first, the full-year guidance based on what you've delivered in EBITDA thus far I guess would suggest lower EBITDA year-over-year in the fiscal fourth quarter. I know you touched on maybe a few of the reasons that you would expect that, but maybe you can get into some of those – if nothing else, help us bridge sort of that year-over-year fourth-quarter EBITDA a little bit because it seems perhaps still a little bit conservative based on how things have been coming in and then I've just got a follow-up.

Sure. Andrew, this is Tom. In Q4, we're expecting to see year-over-year gross profit growth and gross margin expansion and solid year-over-year sales growth. I would say we are seeing a bit of inflation in the fourth quarter. We’ll have increased SG&A. We’re going to have a full quarter of interest expense that’s certainly impacting the quarter, I would say the business fundamentals remain strong. As they have we expect a continuation of some good pricing in the quarter, but we do – so our year-over-year will be – in the quarter we’ll see growth both top and bottom line.

Okay. And then as you talked about, you've got some new capacity coming online in the next few quarters. And obviously, this is not filled, if you will, day one, but trying to get a sense of how we should think about the ramp and maybe when volume can start to accelerate a bit due to that capacity, and when volume does ramp, how does that typically play out in terms of pricing and when that could potentially decelerate a bit, although maybe still positive just given the overall tight industry supply/demand dynamic?

Sure, Andrew, I just to reset our expansion on the big fry line is set to come online towards the end of this calendar year. Obviously there's always a startup curve when you're turning on a new production line and so our anticipation is as we ramp up and become operational, we'll have volume opportunities slanted towards the back half of our fiscal 2018. And certainly Andrew as we think about selling out the line, I fully expect the incremental volume depending upon what segment we sell that production line to be at current gross margins and/or better and we're certainly going to look at opportunities to improve our customer mix and our product mix as we start running that line here at the end of the calendar year.

Got it. Thanks very much.

And we'll go next to Akshay Jagdale from Jefferies.

Good morning and congrats on a solid quarter. I have two questions. The first one is, obviously a lot of your business is contracted and I know you don't want to get into specifics of any of that. So at a very high level, it would be great if you can help us understand what percent roughly of your total volumes have already renewed to reflect the pricing actions that you took in 2016? So I believe there were some pricing actions in May and then in November that we are aware of that happened in 2016. So what percent roughly of your volumes are actually reflecting that and do you expect additional pricing actions in calendar 2017? So that's my first question. I just have a follow-up.

Sure. Akshay, this is Tom. I would say I'm not going to get into the specifics on our volume and percent. I will tell you the pricing actions we've executed this past year, we're seeing flow through the P&L obviously and the other thing is like I previously stated, we contract with our customers every year. There's a lot of variability in terms of timing. And so I will tell you that the teams are doing a great job, managing all the dynamics within our customer and what's going on in the industry. So that typically as we do every year, we work through the process and the timing of that and we've got a great plan to execute against our pricing actions.

So just is a – not a 100% of your volumes have reflected the price increase? Is that a fair assumption?

Yes, Akshay that’s a fair assumption.

Okay. And then just regarding margins, obviously 3Q is typically seasonally your best margin. So there might be a fear that this might be peak margin. So my second question is really about long-term sort of margins peaking from where they are in this quarter? So you've talked about incremental gross margins being higher for the new capacity that comes online, et cetera. We heard recently that the Cavendish plant, your competitor has now been delayed by a year. Is it your expectation that this favorable environment as it relates to tight capacity, is going to continue and for how long? And then these conversion costs, non-potato conversion costs, that have gone up pretty significantly recently, how long do you expect that to last? Thank you.

Sure, Akshay I’ll try and answer all your questions there. Yes, I do expect this environment to continue; certainly we've anticipated the tightness in the industry and have invested in our business ahead of our competition. I would say in terms of continued margin expansion, we are working extremely hard on evaluating our product mix and our customer mix and looking for opportunities to execute in those two areas to continue to drive our margin expansion. Like I said earlier, we expect continued year-over-year margin expansion for the balance of this year and we're always going to look at opportunities to drive more profitable growth in the business. In terms of our competitions announcement of capacity, we certainly have an eye and an ear on what's happening with our competition. We can't control what they're doing and the team, the management team we’re focused on executing our business priorities and as we have opportunities in the marketplace we're going to pursue them.

Thank you.

The non-potato stuff.

Akshay, this is Rob. The other question you asked was inflation on non-potato conversion cost. What we’ve seen is kind of low single-digit in bits and pieces there and as you see the economy generally starting to tighten up, you see it in things like freight up a bit; packaging, if you look at the forecast there are up a bit. And so, again, we're looking at low single-digit kind of inflation where things have been flat in more recent quarters.

Thanks.

Moving on we'll hear next from Matt Grainger from Morgan Stanley.

Hi. Good morning, everyone. Thanks for the questions. I have two as well. The first is just on the global business, I'm just curious if you could give us a sense for what you are seeing in terms of demand on the international portion of the business? I know you said you were seeing growth both domestic and international, but just how that is skewing geographically, whether you are seeing any volatility in places like China or the Middle East that in any way would change your expectations for international growth over the next few years.

Sure. Matt, I will tell you, as we have seen in our – I’ll just characterize it, Asia markets; we've seen pretty solid growth throughout the whole year and even in the quarter. So I feel really comfortable about the opportunities in Asia markets, they've been growing at a pretty good rate over the past four years or five years as I communicated I think on Investor Day. So we’ve a continuation of that growth and I expect that to continue going forward.

Okay. Thanks, Tom. And then the other question I had is just on the foodservice segment. In the quarter here, this is not necessarily different from what we've seen over the past few quarters, but you had 10% price mix, 30% growth in divisional operating income, very strong. Could you comment more broadly I guess on how that level of growth compares to the profitability across the value chain during the past several quarters, whether you are the kind of the principal beneficiary of this capacity-constrained environment, or is there evidence that that's also flowing through in a way that's benefiting your major foodservice customers and distributors as well?

Well Matt, I think we're seeing a full effect in that segment of all the actions we've taken over the past 10 months now I'd say. So I think it is a condition of the industry and what's happening right now, but we certainly are benefiting from it, there's no question about it. And we're being prudent and some of that we are focusing on mix and customer mix as well. So pricing is a big element of it, but the industry in general is benefiting from it as well.

Okay. And just a quick follow-up. So it is probably fair to assume that when we are trying to wrap our heads around that 10% price mix that the mix contribution you are seeing in the foodservice business is going to be more pronounced than anywhere else in the business at the moment?

No, I wouldn't necessarily come to that conclusion.

Okay. You don't have to elaborate too much further if you don't want to do; that's fine. Just curious. Thanks.

Your next question comes from Chris Growe from Stifel.

Hi, good morning.

Good morning.

Hi. I just had two questions for you as well. I wanted to ask first of all, I think in last quarter and this quarter as well, you talked about finished goods inventory building. It sounds like that starts to come down in the fourth quarter. Does that implicitly just create more capacity for you if you look at it that way? And maybe related to that, you talked also about building inventory around some manufacturing downtime. Did that occur already or is that still to occur and is that a factor that we should include or incorporate around your volume growth in the fourth quarter?

Okay. Thanks Chris, this is Rob. In terms of building inventory, we are going to take some normal maintenance downtime as we do really every year later in our crop year and so some of that’s to come and so some of that will be replacing that kind of inventory or that downtime and so not necessarily incremental sales growth off of that as much. The other piece is we’re building some inventory related to some capital downtime that will have later in the year.

Okay.

You'll see that in the finished goods inventory number in the queue, when you see the detail of it.

Okay. Got you and then I just had a question in relation to SG&A, which was up less than I expected in the quarter. I know you've got the public company costs you've got incentive comp up. What are the other factors that are offsetting that I guess you talk about some efficiencies for example. Can you quantify any of that or maybe the degree to which those other costs were up in the quarter in SG&A?

Yes, just in terms of SG&A, Q2 to Q3, I think you're looking at sequentially and recognizing Q2. We took a bit of a catch up adjustment on incentive comp. So it really included Q1 and Q2 catch up on the incentive comp as we had better insight and how the year was going to turnout and so not as much of the incentive comp flowing through in Q3. That's one component of it. The other significant component that’s down a little bit sequentially is A&P down a couple of million dollars it's really more just timing issues than anything else we still see that blown out for the year. Key point is that year-over-year standalone costs increase is still in that $10 million to $15 million range and we're still have line of sight consistent with what the company communicated Investor Day in terms of SG&A.

Are you at the full run rate of those public company costs yet, or is that still to happen?

We're not quite there yet, but we're getting a lot closer and really we anticipate by year-end will be pretty much there although probably not fully reflected in Q4.

Okay, thanks for your time.

Thanks, Chris.

[Operator Instructions] We'll take a question next from Adam Samuelson from Goldman Sachs.

Yes, thanks. Good morning, everyone.

Good morning, Adam.

Good morning, Adam.

Maybe a question on potato costs. We've seen some reports that potato contracting for the 2017 crop is actually down slightly year-on-year. That's probably a base pricing number and there's adjustments that come with that, not to mention kind of changes in potential crop quality or size? Can you talk about expectations on potato costs as you look later into calendar 2017 and into 2018 and if that outlook has gotten more or less constructive in year-end? And maybe a corollary to that is how should we think about the flow through of what has been fairly healthy price realizations on the processing end back upstream to the farm level and how you can get commodity cost deflation on potatoes in an environment where you are actually realizing very healthy net pricing?

Sure, Adam. I’ll tell you we are right smack in the middle of our potato contracting negotiations and I'm not going to get into where all that is played out because we have not completed it across our growing networks. So as we do every year once we have all of our grower contracts negotiating and pricing across our growing areas locked down, we step back and assess the impact of that from a cost perspective and that is one component of it and it's a big component of our overall cost structure. But as Rob alluded to, we have a number of different other inputs that we're seeing inflation year-over-year and as we put all the pieces together over the balance of the next coming months, I will step back, take a look and take the appropriate action that we need to do to that continue to drive our business.

Okay, that's helpful. And then maybe on the foodservice component, thinking about the new capacity that comes on late in calendar 2017, can you elaborate a little bit on how the ramp of that capacity comes on-stream, if you think - how long you think it will take to actually run that plant full and fill it up and along with that, the mix today of your business in foodservice that you would call the branded Lamb Weston product versus private label and if that mix has shifted in a meaningful way in the last 12 months?

Sure. Again our capacity be online at the end of the calendar year, there is a certain startup timeframe and it does take some time to fill that capacity up. So it will ramp up over the balance of the back half of next fiscal year. And as I stated earlier, we are going to look at the best opportunities in terms of meeting our customer demands. We've got some international growth coming that we still see happening. So it really depends on the opportunities to fill that line up, but it is a process and it does take some time to ramp that capacity up. The other thing, your other question in terms of…

Branded versus private label.

Yes. We haven't seen a significant change in food service in terms of our Lamb Weston brands versus private label from a percentage standpoint has been pretty flattish.

Okay. That's very helpful. I’ll pass it on.

And next we'll hear from Bryan Spillane from Bank of America.

Hey, good morning everyone.

Good morning.

Good morning, Bryan.

Just two questions from me. First one, I guess appreciate the comments you made about capital allocation earlier. Can you give us a sense, once this production capacity comes online, maybe just update us on your thinking about either adding more capacity or making acquisitions to take on capacity? Has anything changed in the industry since you went public, which might affect the way you're thinking about that portion of capital allocation over the next couple years? And underneath that, really just trying to understand when we get to the point where we can start to see maybe some increase in free cash flow.

Sure. Bryan, I would tell you generally how I'm thinking about the industry and capital, it has not changed in my mind. There's certainly been some competitive announcements that we're keeping a close eye on, but as we get to a what I'll call a more normalized capital expenditure level, we will continue – we will evaluate our cash and determine what's in the best interest to return that to the shareholders going forward, but that will be happening over the coming months as we work through some of our strategic initiatives.

Okay. Thank you. And then just one last one from me, with the industry capacity being as tight as it is, I guess it implies for your customers, right, so for the end markets, is there anything they are doing differently? Are they raising prices on their menus or on French fries in general? Just anything they are doing differently given the supply constraints?

Sure. Bryan, I'll tell you in generally if you look at the foods, the restaurant industry, there is an increase in menu costs. So there's no question about it based on the data that we analyze. I don't know specifically from customer-to-customer what their actions are, but overall you can see it in the industry data that there is inflation in the restaurant industry.

So I guess it kind of goes back to I think it was Matt Granger's question earlier, is you're kind of seeing – the inflation is kind of going through the system if you will?

Yes, you certainly can see it in the data that we look at.

Okay, great. All right, thanks, guys.

And we have time for one more question that will come from Carla Camellia from JPMorgan.

Hi. Thanks for taking the question. On CapEx, can you give us any sense for next year front-end versus back-end-loaded and where is maintenance CapEx when you finish your projects; where could it come back down to and when could we see that?

Yes. Carla, this is Rob. We will have some carryover from the Richland project in the next year and it's going to be fairly front-end loaded. I think at Investor Day, the Company talked about $150 million to $200 million range for next year and we're still within that range maybe in the middle of that range frankly as we refine it. In terms of maintenance levels of CapEx kind of the steady state CapEx for the investor base that we've got today is in the $100 million, $110 million range.

Great, thank you. That’s all I had. End of Q&A

And that concludes our Q&A session today. Gentlemen, I'll turn the conference back to you for additional or closing remarks.

Hi, everyone. Thank you for joining us for the call today. I am happy to take any questions pop me in the email within schedule or some time if you have any follow-up otherwise for – see many of you in New York and Boston next week. Thanks again.

And that does conclude our conference today. Thank you all for your participation. You may now disconnect.