Good day everyone. Thank you for standing by. Welcome to the Lamb Weston Third Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dexter Congbalay, VP, Investor Relations of Lamb Weston. Please go ahead, sir.

Good morning, and thank you for joining us for Lamb Weston's third quarter earnings call. This morning we issued our earnings press release, which is available on our website lambweston.com. Please note that during our remarks, we'll 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. Some of today's 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 our performance and some updates on the operating environments in North America and Europe. Rob will then provide the details on our third quarter results and our updated fiscal 2019 outlook. With that, let me now turn the call over the Tom.

Thank you, Dexter. Good morning, everyone. And thank you for joining our call today. I'm pleased to say that we're continuing to successfully execute on our strategies as we leverage our advantage global platform to serve our chain restaurant, food service and retail customers. We have a good operating momentum in each of our channels and remain committed to investing back in our business to support long-term growth and create value for all our stakeholders. In the third quarter, we delivered solid results despite facing difficult year ago comparisons and a challenging operating environment in Europe. Our top line growth of 7% was driven by solid mix of volume and price mix in our Global and Food Service segments. Adjusted EBITDA including unconsolidated joint ventures was also up 7% and through the first nine months of the year, we generated about $445 million of cash flow from operations. Because we delivered another solid quarter and have built good operating momentum, we’ve again raised our fiscal 2019 outlook. We now expect sales to increase high-single digits and EBITDA including unconsolidated joint ventures to be $895 million to $905 million. Our third quarter results reflect the continued strong execution and focus by our commercial supply chain and functional teams. Our global team continues to work closely with our large chain customers to drive growth across our key markets. This included driving incremental growth from limited time offers both in the U.S. and Asia, winning new business from a fast growing regional quick serve restaurant chain and supporting customers affected by the short crop in Europe. Our food service direct sales team has been improving mix by increasing sales of Lamb Weston branded products. As part of that the team has been working with a number of small and regional chain customers on…

Thanks, Tom. Good morning, everyone. As Tom noted, we're pleased with our results for the quarter, as solid results in our base business more than offset softness in Europe, specifically in the quarter, net sales increased 7% to $927 million, driven by a good balance of favorable volume and price mix. Volume increased 4%, led by growth in our Global segment price mix was up 3% due to both pricing actions and improved mix. Some of our growth reflects the impact of a new accounting standard that we adopted at the beginning of this fiscal year. Specifically, the new standard effects when we recognize sales of customized products, which we define as products that we manufacture using a customer's unique recipe, such as a McDonald's French fry, or a limited time offering product that's made for a single customer. Under the new standard, we recognized revenue for customized products at the time we have a legally enforceable right to payment, which is once we've manufactured the product and have received a customer purchase order. Since sales of customized products are generally recurring, there hasn't been much of an impact on a quarter-to-quarter basis. However, in the third quarter, we received a higher number of purchase orders for customized products. In short, the effect of the new standard is all timing, which may create incremental quarter-to-quarter volatility. Gross profit increased $31 million or 13% to $273 million. Overall higher prices, favorable mix from increased LTO activity, volume growth and supply chain efficiency savings drove the increase, more than offsetting the impact of relatively modest material input, manufacturing and transportation costs inflation. The increase in gross profit also reflects a $4 million gain in unrealized mark-to-market adjustments related to hedging contracts. This compares to a $1.3 million loss in the prior year…

Thanks, Rob. Let me quickly sum up by saying we're pleased with our results in the quarter and are confident that we'll finish the year on a strong note. We're executing well across the organization and have built good operating momentum in each of our core segments. We remain laser focused on executing on our strategies of investing to support long-term growth and create value for all our stakeholders. I want to thank you for your interest in Lamb Weston. And we're now happy to take your questions.

Thank you. [Operator Instructions] And we'll go first to Bryan Spillane with Bank of America.

Hey, good morning, everybody.

Good morning Bryan.

Just two questions for me, I guess, first, as we're kind of looking at the situation in Europe and thinking about it, I guess for 2020, can you elaborate a little bit more on just how you see sort of the potential kind of crop conditions or plantings, are there enough seed potatoes, is there anything else that might sort of drag this supply issue into 2020. And then also, if you could talk a little bit about the opportunity to fill some of the supply gaps in Europe out of North America, how that's progressed?

Bryan, it’s Tom. So in terms of seed, potato seed and crop and planting, all those kinds of things it's no concern about seed, I would say, we're early in the planting. So, we feel good about our growers and how that's progressing. And as I do every year, further down the year we'll give an update on how the crops progressing not only in Europe, but across North America. I think the -- your other question in terms of how this is going to play out, it's going to pressure the business as we've stated. Obviously, you've seen the result in Q3, we expected -- they're in line with our expectations. It's going to continue in Q4 through the first half, but will progressively improve based on cost initiatives and pricing that all started flowing through the P&L. But it's definitely going to be impactful through the first half of 2020, as we've stated. And the last part of your question, we've got ourselves positioned with our book of business between Europe and U.S. supporting some of the European customers out of our U.S. operations. And right now, I stated, I think, there's going to be some opportunities. And it's still early and it still has to play out. I believe we may get some opportunities, but right now, we've had nothing material that’s been brought to our attention.

Okay, thanks for that. And then just as a follow up, one of the questions we've got a lot in the last few weeks has been just concern with the capacity coming into North America that is, maybe got to put some pressure on prices and potentially margin. So, I guess, as you've kind of looking at the landscape as it sits right now, is that something that that you're concerned about at this point or has anything really changed in terms of the environment?

As of right now, there has been some capacity come on. It has not materially impacted our business, we are obviously monitoring it. We've got capacity coming on in May. And a part of this to, again, it's going to normalize run rates back to a more sustainable level. And I suspect this fall, we may have pressure in pockets, but we're going to continue to execute pricing discipline in the market and let things play out. But I think it'll be immaterially impactful in the near-term.

Okay, great. Thank you.

We'll go next to Chris Growe with Stifel.

Hi, good morning.

Good morning, Chris.

Hi, good morning. Just had a question for you, I want to better understand the limited time offering performance in the quarter. And the mix effect, it sounds like that was positive year-over-year against exceptionally tough comparisons. So I want to just understand kind of how that played out and what that meant to mix, maybe I guess to a degree to margins. And then can that continue in the fourth quarter? Are you seeing a continuation of the strong LTO performance you think continuing into Q4?

We had several -- Chris, this is Tom, we had several LTOs that were planned in the quarter. And as we always do, we take a conservative view of how those are going to perform. Had a couple domestically and international LTO that exceeded our expectations. We will get into how things are shaping up in the next quarter. But, again, the LTOs performed better than we expected. And every year we're going to have LTOs in our business periodically. So -- and we always take a conservative view.

Okay. And then just a question for you on the gross margin somewhat following on that that question, I guess, the gross margin was much stronger than I expected in the quarter. You had a favorable mix performance as well. You indicated that you expect it to be about or at least in line with sales for the year -- I'm sorry, sales growth for the year. But given the performance to date, is there anything unique to the fourth quarter we should be aware of or anything that could be pressuring the gross margin in the fourth quarter that could keep the expectation for the year down a bit?

Chris, it's Rob. Typically, as you know, that fourth quarter the raw costs tend to be higher than in the third quarter, third quarter tends to be most attractive just because of storage cost and the aging of the raws. But beyond that normal seasonality, we don't see anything in the fourth quarter that’s going to pressure margins.

Okay, thank you for the time.

Hey, Chris. I mean, we said we're going to have about $3 million of startup costs related to Hermiston in our prepared remarks. So something else just to remember.

Okay, that's helpful. Thank you, Dexter.

We'll go next to Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning, everyone.

Good morning, Adam.

I was hoping to go back Tom to something you said in response to Bryan's question on the impact to capacity. And kind of the word - your word was pockets of pressure. And just maybe elaborate on where and how that would really manifest itself based on kind of your historical experience in the industry, when you've had bigger incremental capacity come on, just category customer type is it something that you would actually see with your bigger global customers, especially as we look to calendar 2020, when you've a bigger part of that business up for renewal.

Sure, Adam, the -- couple of things to your question is, as the category is -- we expect the category to have a 1.5% to 2.5% growth. So there's always going to be an organic component that's going to need capacity support that’s the first thing. The second thing that we’ll have to monitor closely is some of the contracts that are coming up for renewal with a few bigger customers and that's where we may see some pressure on pricing. But we'll deal with that as those contracts come up for bid.

Okay. And then just on the performance kind of in the quarter and just try and think about the implications. I mean, do you think that has your view of market growth changed in a material way, I mean, I think we've kind of always been operating under the assumption, this is a kind of 2%, 2.5% growth business for the North American industry. Do you think that the market has been kind of meaningfully outperforming that? And if so, is that just new use occasions in different channels. Just elaborate on that the Crispy on Delivery, just being more incremental to demand than you might have thought potentially?

Yes, right now, I don't have a different point of view on the overall category growth based on all the data and how we analyze not only North America, but international markets in total. So I would say, the 1.5% to 2.5%, we feel pretty good about. Over the long-term that's where it's going to shake out at and some of the incremental Crispy on Delivery for example, that's really -- I don't view it as a new occasion, but that's meeting an occasion with a better quality fry that travels better, and that's how I view that product.

Okay. And then just lastly, just quickly it seems like the potato crop in the Pacific Northwest, the planting might have gotten started a little bit later than the normal. Is that something that would materially impact you as you move into kind of the August through October timeframe or not enough deviation from history to matter?

No, Adam, it's -- right now the plant crop is two weeks late planning in the Pacific Northwest. We had a point of view that 30, 45 days ago and took actions to ensure that we were balanced on our raw. And again, it's early planning. I've been around this business a long time to know that at times we always tend to catch up, but we got to let it play out and we’ll provide more context on crop in a couple of calls as we always do.

Okay, really appreciate the color. I'll pass it. Thanks.

And we'll go next to David Mandel with Consumer Edge Research.

Hey guys, thanks for taking my question. First, how would you rate the state of your plans given the high utilization rates? Will they get the necessary rest with the oncoming capacity or does the Europe shortage precludes that how should we think about that?

Yes, this is Rob, Dave. The -- as you recall, we started up a new line in Richland here in last a year or so, and that’s allowed us to take capacity to more normalized levels in our plans. And so we are able to get caught up on the maintenance that we may have differed over the prior few years. And then, we'll have the new line coming on in Hermiston, which will give us further capacity to help support the continued growth in the business.

That's great, thanks. And my last question, we've covered a lot of ground so I just want to ask a high level question. The faster growing markets, I assume that they're not all created equally, you have China, Mexico, Middle East, Russia. I assume some processing plants might be turnkey and some might be fixed or uppers. How can I think about that in terms of those four markets?

Well, I think that's exactly right that the growth rates aren’t all created equal. And you also have to think through the overall market size. So some of those markets give you directional 500 million pounds, 600 million pounds, some of them a 1billion pound, which is very different than North America and Europe. So they're not all created equal. In terms of your second question, capacity is not all created equal as well. So as you look at capacity in China those plants have different capabilities versus our plant, not only in China, but in North America. So you are right they are now created equal.

Great, thank you very much.

And we'll go next to Carla Casella with JP Morgan.

Hey, guys. This is Sarah on for Carla. We just wanted an update on your capital allocation parity in regards to shareholder activities versus delevering? And then also maybe an update on your M&A?

Okay. Sarah, it's Tom. Very consistent on our capital allocation, we're going to continue to invest in our business as we have in the past and this year will in the future to drive growth. We're going to support a dividend. We've implemented a share repurchase, which we've been active in the market recently. So we're committed to -- as we've been very consistent since the spin that's our capital allocation strategy. In terms of M&A that's part of the strategy as well. I can't get into specifics about where we're at and what we actually have going on. But we are committed to pursue M&A, targeted M&A where it makes sense for us.

Okay, great. Thanks.

And there are no further questions in queue.

Thanks everyone for joining the call. I'll be available for any follow-up questions, either via phone or via e-mail. And look forward to speak with you later. Thank you.

And that concludes today's conference. Thank you for your participation. You may now disconnect.