Lamb Weston Holdings, Inc. ($LW)

Good day, and welcome to the Lamb Weston Third Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Lamb Weston's Third Quarter Fiscal 2026 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings 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 and the appendix to our presentation. Joining me today are Mike Smith, our President and CEO; and Bernadette Madarieta, our Chief Financial Officer. Mike and Bernadette will provide prepared remarks, and then will be available to take your questions. Let me now turn the call over to Mike.

Thank you, Debbie. Good morning, and thank you for joining us today. I want to start by thanking the Lamb Weston team around the world for their hard work in what continues to be a dynamic market. Their expertise, disciplined execution and willingness to embrace change and act with urgency have been instrumental in the progress we are making. In the third quarter, we delivered another solid performance. The fifth quarter in a row of in line or better results, demonstrating that we continue to do what we said we would do. This strength supports our updated fiscal 2026 outlook including a tighter guidance range and a higher midpoint of net sales and EBITDA. This was led by ongoing momentum and a strong sales performance in our North America business, where customer wins, share gains and strong retention delivered 12% volume growth and 5% net sales growth in the segment. Over the past year, we have made considerable progress in this business across our operations and most importantly, with our customers. This has enabled us to grow while restaurant traffic and consumer sentiment have been soft. Overall, QSR traffic was up 1% in the third quarter. Bernadette will speak to this in more detail. In North America, our focus this year was on strengthening our customer partnerships and consistently executing. We finished our customer contracting season with a higher retention rate and solid new customer acquisition. At our production facilities, we've delivered improvement in our run rates and core operational KPIs. We are generating cost savings ahead of plan across our business, and our employee engagement scores have improved significantly. Our international business, as expected, was challenged by an evolving market environment, resulting from a significant surplus in the European potato market due to expanded potato acreage and a robust crop of potatoes during the last growing season. Local sourcing in developing regions such as Middle East, China and India, which is affecting exports from Europe to those markets and persistently lower restaurant traffic in key countries. We are taking decisive actions to manage our business in the near term and protect profitability. During the third quarter, we announced the closure of our Munro, Argentina plant, and consolidated production from the Latin America region in our new modern Mar del Plata, Argentina facility. As we had previously announced, we began temporarily curtailing our production line in the Netherlands at the beginning of the fourth quarter. Further, the company doesn't plan to resume production in 1 of its previously curtailed Australia locations. While we believe the competitive backdrop in certain international markets may result in less capacity expansion than was anticipated, we are focused on controlling what we can control, acting with urgency across the company and being disciplined in our capital investments. It has been a year since I joined you for my first earnings call as CEO. Over that time, we have taken significant actions to improve our performance. We developed and in July, began executing our Focus to Win strategy to drive targeted decision-making and actions. This strategy is a departure from Lamb Weston's previous focus on growth and scale. Instead, we are taking a more thoughtful approach to where we are geographically and from a capability perspective, positioned to win long term, including where our customer proposition is strongest and making sure any investments we make are evaluated through this customer and return-centric framework. As we near a year working with this paradigm, the changes are significant and inform our decision-making and how we compete for business on a daily basis. As part of these efforts, we set a target of $250 million in cost savings by fiscal year-end 2028. Our first goal was to achieve $100 million in savings in fiscal 2026. As of the end of third quarter, we have already delivered on those full year savings and are tracking ahead of our program target. These savings have afforded us the opportunity to make selective investments in support of our customers. We believe these targeted reinvestments have been the right long-term choice for our business and have been particularly powerful as they are paired with the improvements we have made in execution to deliver higher consistency and quality for customers and our continued commitment to product innovation. Altogether, these have combined to drive substantial improvement in our positioning with customers, which is reflected both in strengthened retention and new customer acquisition. But to be clear, the actions we have taken and will continue to take on cost and capital deployment opportunities are structural. As we move forward, we believe they make us a more competitive organization while also positioning us for improved operating leverage and a more favorable price/mix environment. We are also evaluating additional opportunities for improvement in savings across the organization, the details of which we will share in the future. Perhaps most importantly, we believe we are just getting started. Our new Executive Chair, Jan Craps, brings extensive experience and an intense focus on operating execution from his time at AB InBev. Jan is highly focused on helping us evaluate opportunities to improve in international markets, where his experience in a leading global company is providing valuable perspective on how to navigate a dynamic environment. We will also soon welcome Jim Gray, our incoming CFO, who will bring an additional fresh perspective to our work. We also have a refreshed Board with 7 new members since July with expertise in food, consumer goods, agriculture, supply chain and finance. This group is focused on improving performance, driving better returns on capital and driving long-term shareholder value creation. As I have said before, business turnarounds are not linear, but 9 months into Focus to Win, we are making clear progress against our key business objectives. We have significantly improved our position with customers. We are improving our North America operations and are controlling the controllables internationally in a dynamic market, while we work to deliver on the cornerstone of our strategy, prioritizing markets and channels. With that, let me get to some specifics to illustrate the progress we are making. First, strengthening customer partnerships is central to executing our strategy. We've made meaningful progress in deepening and strengthening our relationships with customers this past year. As part of the analysis we did last year, we evaluated and streamlined our U.S. commercial go-to-market strategy and structure. Importantly, our direct sales team has positively impacted our selling on the street, including execution of pricing and working through challenges directly with customers. This is a key market differentiator and a core component of our customer partnership model. Our team is 100% focused on fries and the attractive financial role that they serve our customers. We have also augmented our direct team with a broker model in key channels where we saw this to be the most efficient way to immediately accelerate our near-term competitiveness. Second, in our achieving executional excellence pillar, we are focused on continuing to build an agile and best-in-class supply chain that allows us to operate efficiently and consistently while balancing supply and demand. This includes curtailing production when needed, closing production facilities that don't meet our customer and efficiency standards and restarting production seamlessly as we did in North America. Finally, within our efforts to set the pace for innovation, I want to highlight Grown In Idaho brand. We invested in a landmark category study, highlighting how consumers think, feel and shop for frozen potatoes. This work led to a reinforcement of the Grown In Idaho brand essence. As a result, we are launching a new brand positioning that is rooted in real and created for people who value where their food comes from. Shortly, you'll begin to see this brand show up on shelf with new packaging and a new clear message tied to made with real Idaho potatoes. Moving to Slide 8. As you know, over the past several months, we were engaged in contract negotiations for the 2026 potato crop. In North America, contract negotiations are nearly complete. Overall, we expect a low to mid-single-digit percent decline in raw potato price in the aggregate and have largely secured the targeted number of acres across our primary growing regions. Planting is on schedule for the early potato varieties, and we expect planting for the main harvest to be completed by the end of April. In Europe, fixed-price contract negotiations for 2026 crop are underway and progressing as planned. Based on our current indications, overall pricing is pointing toward a mid-teen percent decline in our contracted agreements from 2025. Fixed-price contract planning across the European growing regions will continue through the end of April. We will provide our customary update on the outlook for the North American and European potato crops when we report fourth quarter earnings in July. In addition, we do not currently anticipate a material impact from recent fuel and fertilizer inflation to impact our fiscal 2026. In closing, our Focus to Win strategy is taking hold. Our focus is solidly on our customers as we strive to strengthen our partnerships around the world. It is on executing exceptionally well and delivering on our cost savings work. We are identifying and driving opportunities created from heightened accountability around our goals and by building a culture of continuous improvement in cost and capital management, agility and improving our capital efficiency. I will now turn the call over to Bernadette to review the quarter and our outlook.

Thank you, Mike, and good morning, everyone. I'm starting on Slide 11. Third quarter net sales increased 3%, including a $47 million benefit from foreign currency translation. On a constant currency basis, net sales were essentially flat with last year. Volume increased 7%, led by solid execution in North America, including customer wins, share gains and strong retention. This more than offset softer demand in key markets in our International segment. Price/mix declined 7% at constant currency, reflecting the targeted investments in our customers for price and trade support that Mike mentioned earlier. Adverse product mix as consumers shift towards value-oriented channels and brands and chain restaurants, which typically carry lower prices and softer industry demand in key international markets as well as increased competitive export dynamics, which most notably affected our EMEA business. Let me provide context on what we are seeing in traffic trends. In the U.S., QSR traffic turned positive for the first time since late fiscal 2024, up 1% for the quarter. QSR burger traffic grew in February, although it was down 1% for the full quarter. QSR chicken remained a bright spot with continued growth. Internationally, most markets saw low single-digit declines in restaurant traffic. In the U.K., our largest international market, QSR traffic declined approximately 1%, showing improvement versus recent quarters. Looking at our segments. North America net sales increased 5%. Volume increased 12%, driven by recent customer contract wins, share gains and strong retention across our customer base as well as the relatively lower volume comparisons this quarter last year. Price/mix declined 7%, with roughly half of the decline coming from price and trade support. The remaining half reflects mix as growth with both new and legacy chain customers continues and as consumers shift from branded to private label products. In our International segment, net sales declined 1%, including a $44 million benefit from foreign currency. At constant currency, net sales declined 9%. Volume declined 2%, primarily due to softer demand in key markets and a more challenging comparison. Last year, third quarter volume grew 12%. Outside of EMEA, volume grew in China and Latin America and year-to-date volume is up across every region outside of EMEA. Price/mix declined 7% at constant currency, reflecting price and trade support for customers and unfavorable geographic and customer mix as lower-priced regions and customers are growing. We also expect some impact from the conflict in the Middle East and excess international capacity remains a factor. We'll continue managing these dynamics with a disciplined approach. On Slide 12, adjusted EBITDA declined $101 million compared to last year, to $272 million. Adjusted gross profit declined $93 million. The primary drivers were unfavorable price/mix, a $33 million net pretax charge to write off excess raw potatoes in the International segment due to lower-than-planned sales and a stronger-than-expected crop yield and higher fixed factory absorption costs in Europe and Latin America as underutilized production facilities carried higher costs. And finally, a year-over-year headwind. Last year, we realized the benefit of processing directly from the field in the third quarter. This quarter, given lower inventory levels, we realized the benefit beginning in the second quarter, which created a tougher comparison against last year's unusually strong third quarter gross margin. These headwinds were partially offset by higher sales volumes. Benefits from our cost savings initiatives and improved operating efficiencies in North America. Input costs, excluding raw potato prices increased year-over-year, driven by tariffs edible oils, notably canola oil as well as increased fuel power and water, labor and transportation costs. As Mike mentioned, we expect potato input cost to decline in the upcoming crop year. Most of our tariff exposure relates to imported palm oil. Recent trade agreements eliminated that tariff, which is a positive development for our cost structure going forward. We will see some tariff expense in the fourth quarter as we sell through existing inventory that was purchased before the change. In the third quarter, we recognized approximately $4 million of tariff expenses. And unless the agreements change, we don't expect to incur this cost after the fourth quarter. Turning to SG&A. Adjusted SG&A increased $9 million versus last year. The cost savings we delivered in the quarter were more than offset by normalized compensation and benefit accruals tied to performance achievements, along with the write-off of $13 million of capitalized costs from projects no longer under development. To help show these dynamics and the underlying drivers of SG&A performance, turn to Slide 13, which outlines SG&A trends and the actions underway. In the last year, we reviewed our SG&A efficiency, including input from outside advisors. Building on that work, we developed targeted action plans to reduce SG&A through our cost savings program that will continue to drive improvement over time. As a reminder, adjusted SG&A includes several strategic items. Revenue-linked advertising and promotion, royalties from growing our retail business, miscellaneous income and expense items such as asset write-downs and noncash depreciation and amortization. Revenue-linked expenses have remained relatively flat as a percent of sales, while amortization has increased as we've implemented new cloud-based and ERP platforms. Adjusted SG&A as a percentage of sales peaked in fiscal 2023, driven largely by the European joint venture consolidation and ERP implementation costs that were incurred ahead of go live. On a normalized basis, excluding amortization, asset impairments and normalizing incentives at 1x payout, fiscal 2023, SG&A as a percentage of sales was 8.5%. Since then, we have taken action to streamline our cost structure. SG&A now stands at 7.8%, a 70 basis point improvement versus fiscal 2023 and about 70 basis points above the 7.1% level we saw in fiscal 2019 before COVID and our major global expansions. The increase relative to 2019 primarily reflects investments to enhance our IT capabilities. While we've made meaningful SG&A progress, we continue to identify and execute against additional SG&A efficiency opportunities within the framework of our cost savings program. We will provide an update on our plans and progress as we proceed. Turning to segment EBITDA on Slide 14. In the North America segment, adjusted EBITDA declined 4% or $13 million to $290 million. This was fully driven by customer price and trade support and mix. While the underlying fundamentals of the business, volume growth, lower manufacturing cost per pound and lower segment SG&A partially offset the increase in price/mix. In our International segment, adjusted EBITDA declined $76 million to $19 million, primarily reflecting lower sales namely in Europe, where restaurant traffic and softer exports from excess industry capacity remains challenging. Higher manufacturing costs per pound including the $33 million net pretax charge to write-off excess raw potatoes, higher fixed factory burden from underutilized production facilities in Europe and Latin America, and input cost inflation outside of raw potatoes. To mitigate these headwinds, we took the actions Mike spoke about to temporarily curtail production of a line in the Netherlands and permanently close the production facility in Argentina. These impacts were also partially offset by our cost savings initiatives. Turning to the balance sheet and cash flow. Slide 15 summarizes the strong cash flow generation that continues to support our strategic and financial priorities. Cash generation has improved meaningfully this year. Through the first 3 quarters of fiscal 2026, we generated $596 million of cash from operations. That's up $110 million versus last year. This improvement reflects strong working capital execution, driven primarily by lower inventories in North America and to a lesser extent, the timing of accounts receivable collections. Our focus on execution and capital stewardship enabled us to deliver $339 million year-to-date in free cash flow, an increase of $417 million year-over-year. Capital expenditures were $257 million in the first 3 quarters, down $307 million from last year. We now estimate full year cash spend to be approximately $400 million, aligned with our focus on maintenance, modernization and environmental projects. Our liquidity remains strong. We ended the quarter with approximately $1.3 billion of liquidity. Net debt was $3.9 billion, our net debt to adjusted EBITDA leverage ratio was 3.4x on a trailing 12-month basis, consistent with last year's third quarter and aligned with our balance sheet priorities. Turning to Slide 16. We remain committed to returning cash to our shareholders through our dividend and opportunistic share repurchases. During the first 3 quarters of the year, we returned $205 million to shareholders. including $155 million in cash dividends and $50 million of stock repurchases. We did not repurchase shares during the third quarter. After the quarter ended, however, and through March 30, we have repurchased approximately $43 million of stock or 1.1 million shares at a weighted average price of $41.50 under a 10b5-1 trading plan. And earlier this week, the Board approved the next quarterly dividend of $0.38 per share payable on June 5. Turning to our outlook on Slide 17. We are raising the low end of our net sales guidance and increasing the midpoint. We currently expect net sales in the range of $6.45 billion to $6.55 billion including an approximate 1.8% foreign exchange benefit or about $95 million year-to-date. Adjusted EBITDA is now expected to be in the range of $1.08 billion to $1.14 billion, which includes our current assessment of the additional risk associated with the ongoing Middle East conflict. In North America, we expect high single-digit volume growth in the second half, which also includes the benefit of an additional week of sales in the fourth quarter. As I noted earlier, third quarter growth was elevated because we were lapping an unusually low quarter last year. In our international segment, full year volumes are still expected to grow. However, we anticipate year-over-year declines in the second half as we lap unusually strong performance last year and as the fourth quarter is further pressured by the evolving conflict in the Middle East. For reference, sales to the Middle East represents a high single-digit percentage of the international segment volume year-to-date. Price mix in the fourth quarter will remain unfavorable at constant currency. We expect the price declines to moderate slightly in the quarter, supported in part by the recent price increase we implemented in early March to offset inflation. The price increase effects our noncontracted North American business. On mix, we assume ongoing pressure to persist for now, reflecting continued growth with chain restaurant customers and a shift towards private label offerings with retail customers. In our international segment, we expect to continue to face headwinds from the dynamics we've discussed. Adjusted gross margin is expected to decline seasonally in the fourth quarter, down 250 to 300 basis points from the third quarter's 20.9%, including our current estimate of the potential impact from the conflict in the Middle East. Adjusted SG&A continues to benefit from our cost savings initiatives. In the fourth quarter, SG&A dollars are expected to increase slightly from the third quarter due primarily to an extra week of expenses as well as incremental innovation and technology investments. We expect a full year tax rate of approximately 28%, with fourth quarter in the mid-teens. The full year tax rate includes approximately $20 million of adjusted tax impact from losses in jurisdictions, where we do not expect to receive tax benefits. We now anticipate full year depreciation and amortization of approximately $395 million compared with the prior estimate of $390 million. The team continues to execute well in what remains a dynamic environment. We are entering the final quarter with a strong balance sheet, disciplined cost management and a sharp focus on operational performance. Before I hand it over, I do want to acknowledge the leadership transition. This is my final call as CFO with Jim stepping into the role tomorrow. I'm fully committed to ensuring a smooth transition, and I'm incredibly proud of the work this team delivers every day. With that, I'll turn it over to Mike.

Thank you, Bernadette. As we shared today, we are committed to doing what we say we will do, recognizing that the environment is evolving quickly. North America is executing well, and we continue to have room to grow that business. Internationally, we are taking actions to manage our costs and position us in a fluid market. Our international focus is fortified with on Jan on board. And finally, we are remaining disciplined in our capital investments in evolving Lamb Weston into a business that can enjoy strong and growing returns on capital. Before we turn the call over to Q&A, I want to thank Bernadette. During her time with the company, she has been a dedicated partner and leader, including the past 5 years as CFO during a period of tremendous change in our industry. We appreciate all she has contributed to Lamb Weston and wish her continued success moving forward. We are now happy to take your questions.

[Operator Instructions] We'll take our first question from Tom Palmer with JPMorgan.

Maybe you could just start out asking on utilization rates. I know you've done a lot of work in terms of your plant footprint here over the last several quarters, including the updates today internationally. So U.S., I think you had the new lines or the previously shuttered lines ramping back up. Where do you sit in terms of ideal rates there? And then with all the actions you're taking internationally, is that going to get you into kind of more of that targeted 90-plus percent range?

I appreciate the question, Tom. Overall, in North America, we're in the low 90s with some of the adjustments that we've made to your point. We're excited that we've been able to bring back online, some of those previously curtailed lines. That allows us to be more flexible with our customers to make sure that we deliver for our customers at those high fill rates moving forward. I will tell you, though, it also allows us to be more thoughtful about the volume that we bring on board and moving forward. When I look at the international business, we have. We've curtailed some lines. We've closed the Munro facility down in Argentina and moved that volume into the Mar del Plata facility. And we'll continue to evaluate kind of based on supply and demand and the outlook of the business. I will tell you, it's a little -- not all of our plants make the same items. So they have different technologies and different capabilities. So it's not as easy as just turning off 1 line, and bringing another 1 back on. And so we want to make sure that we're delivering the right capabilities to our customers as they expect from Lamb Weston moving forward.

And then on the pricing environment in Europe, I know it's hard to be overly specific. I think there's kind of 2 nuances this year. One is just the competitive environment generally. But I think secondarily, spot potatoes, as I understand it, are really cheap, and that is causing some maybe heightened pressure given you guys contract in terms of margin. When we think about next year and the 15% decrease, if that's how the industry is buying, I guess, trying to think more like do you get more on a even scale with the industry next year as how you look at it and maybe we could see more of a margin recovery on that basis.

Yes. It's a combination of multiple factors. It's the capacity imbalance that we're seeing in Europe. It's slower demand and it is that potato crop. So when you think about capacity in Europe, it's not only excess capacity in Europe, but it's also -- they typically would export to markets like the Middle East, China and India, and there's been some new capacity that's there. There's also the restaurant traffic softness that we're seeing across Europe. But to your point, the third element of that is the crop. Now the great thing about our business is each year, you have a reset on that crop. Typically, in Europe, we will contract in that 70% to 80% range of fixed price contracts. The other kind of 20%, 25% range is in open price contracts. With the reset for this year, we are contracting less acres, and we believe that based on the demand in the market, the rest of the growers will be doing the same thing.

[Operator Instructions] And we'll go to our next question with Peter Galbo with Bank of America.

My first question is on just North America price mix. There's a few moving pieces there, I think, as we get through Q4 and into next year, the mix headwind, I think, from more chain, but then you mentioned today, I think, a March price increase. And then with potato costs kind of being deflationary in North America for this summer, I just want to kind of gauge as we get through the first half of next fiscal year where pricing is kind of set, just the risk that we continue to kind of see slippage in price mix maybe into the back half of '27 and beyond, just given some of the factors that we're outlining today.

Yes, a few things, Peter, on that. So our expectation is that we're going to continue to have some price mix pressure in fiscal '27. Obviously, with those decisions that we made around pricing in the current fiscal year that will start to -- we will have that lapping effect into fiscal 2027. We do see price/mix moderating, including some of the benefits of the actions that you talked about. Keep in mind that we see inflation, and we've had inflation over the last several years outside of potatoes, and we need to make sure that we do the best we can to cover that. We'll provide guidance on fiscal '27 like we normally do with our Q4 earnings, and we'll be able to give more clarity on what that might look like for fiscal '27 at that time.

Okay. And if I go to the reduced CapEx guidance, I think you talked a bit more about maintenance CapEx and thinking back a few years ago, even at the Investor Day, there was discussion around, not just capacity expansion, but some kind of elevated structural CapEx for things like wastewater treatment. Like have you been able to mitigate a lot of maybe what some of those structural step-ups would be? Are those no longer kind of in play? I'm just trying to understand the $100 million decline with a quarter to go and then maybe how we might think about that kind of going forward?

Yes. I think just as a reminder, obviously, we were spending a lot on capital, when we were doing the greenfield expansions. And obviously, we have enough capacity in our footprint and don't need that spend. I'd say what you're seeing right now is a reflection of that disciplined decision-making. We'll continue to have those environmental wastewater capitals. We have to do that as regulations change in some of the states in which we operate. But we're really trying to manage our capital spending and make sure that we make the right decisions that have strong returns. That being said, there is some timing elements to some of the capital this year that will flow into next year. But we'll come back next quarter and we'll talk about what that fiscal '27 looks like.

Yes. Peter, just to confirm, we have spent the $100 million that we anticipated spending on environmental expenditures this year. So we are on the path of spending those environmental expenditures over that 5-year plan that we have laid out.

[Operator Instructions] We'll take our next question from Matt Smith with Stifel.

Mike, I wanted to pick back up on the North America top line comments. Volumes are quite strong in the quarter and accelerated on a sequential basis. As you exit this year, can you talk about the volume trajectory based on recent business wins and share gains? And with the utilization rate back in the low 90s and QSR traffic sequentially improving, do you take your -- do you deemphasize going after volume to improve your leverage at this point and get more choiceful about volume? And just how does that play out as you look forward over the next year or so?

Yes, I appreciate the question, Matt. We've been focused on driving those customer partnerships. And that's really focused on the quality, the consistency, innovation and value and making sure that our customers are getting the product on time and in full when they need them. And the great thing that I'm seeing across our organizations, we're really creating a culture throughout our organization of putting that customer first regardless of what function that you're in. Obviously, we're seeing -- we've made some great improvements with those customers, and we're seeing the volume flow through. As I mentioned earlier, as that volume continues to come through and we see our utilization rates in more of those normalized ranges. It does allow us to be more thoughtful about the business we pick up and about how we manage volume into the future, for sure.

And a follow-up on the inflation and cost outlook. You talked about the fourth quarter seeing continued cost pressure. Are you expecting incremental potato write-offs? Or was this a full evaluation of the stock you have and think you've cleared the decks at this point, meaning the carry in crop to '27, your inventory levels will be in a reasonable place.

Yes. We don't anticipate additional raw write-offs. I think the third quarter write-off reflected the current expectation of demand view and what we're seeing for this crop season. We continue to evaluate that based on what we see in the Middle East. But as of right now, we don't anticipate any additional write-offs, based on where the demand is flowing and the best estimates of our business.

We'll go next to Robert Moskow with TD Cowen.

Maybe just if you could give any kind of an update on what you're seeing in North America competitors, supply chain footprint. I think they're coming towards the end of some long-term expansion projects, some of them greenfield. Do you think that those are on track today -- are they still ramping at this point? Or did they fully ramp and we don't have to worry about further capacity coming online for the next 12 months?

Yes. I can't speak to their production and what those -- what our competitors are doing. I know that their facilities are up and running. And I'll tell you, based on our -- the work that we're doing around our customers, we're winning. And our customers are continuing to choose Lamb Weston, and we're seeing that volume growth across our business. And overall, we're starting to see some of the price mix moderating including some of the actions that North America recently took. But the teams are winning. I think our utilization rates are getting back to where they need to be in the low 90s, and that allows us to be very thoughtful about that volume that we take on in the future.

And we'll take our next question from Alexia Howard with Bernstein.

Can I just ask to begin with about the potato write-off in Europe. Are there actions that you can take to avoid that happening again by better demand planning. Is that something that we should not anticipate going forward? Or is it something that continues to be a question mark?

Yes, it's a good question. Listen, we have made some adjustments in how we're procuring raw in Europe for this next crop season that will hopefully allow us to be a little bit smarter and give us a little bit more flexibility in that moving forward. I think you've seen that this year in North America. We have procured kind of the right amount of potatoes. We have stronger demand supply and demand signals and some capabilities internally that are making us stronger and allow us to be -- do a better job of predicting what those demand signals will be in the future.

Great. And then just to hone back in on North America. Obviously, the new customer wins recently have been lower-priced private label or chain customers on the restaurant side. Now that the capacity utilization is back up into the 90s, it sounds though you can be more selective in who you pick up going forward. Does that mean as we look out into fiscal '27, we could see positive mix growth -- price mix trends. Or is this the new normal? And what gives you the right to win in some of those more profitable accounts that might be out there?

Yes. Alexia, I think we're probably a little bit too early. We're going through our annual operating plan right now. So we'll come back at Q4 and share what that might look like for fiscal '27. The one thing I do want to remind the group about is the new business that we've picked up with some of those large chain customers or even some of the private label business in retail in North America, those have been new propositions to the industry. So they weren't currently purchasing frozen fries, and so it has created some mix headwind, but it is new business that just makes the industry stronger overall and fills the capacity that's out there in the marketplace.

And we'll go next to Scott Marks with Jefferies.

First thing I wanted to ask about just within North America. If we think about the current 90% utilization rate, how much in the way of other curtailed lines do you currently have in North America? And how much, I guess, incremental capacity do you have available to bring back online should conditions warrant such action.

Yes. For the most part, we've restarted most of our curtailed lines. And so this allows us to still have flexibility to meet customer demand, but also, as I've said earlier, just be more thoughtful about that business that we bring on in the future.

Okay. Clear on that. And then as we think about internationally and just some of the dynamics going on across the world, I'm wondering what you can share with us in terms of what you're seeing from competitors in terms of their own capacity or where or how they're choosing business in a different fashion versus what they may have done historically.

Yes. I can't speculate on what competitors are doing and so forth or others in the industry. But I can tell you the pace of announcements have slowed. We have heard of some short-term industry capacity curtailments, specifically in Europe as they manage through the crop and kind of the slower demand. But we think or we believe that the competitive backdrop in some of these international markets may result in less capacity being built than was maybe previously thought, just given kind of the market or industry dynamics.

And we'll go next to Marc Torrente with Wells Fargo Securities.

I guess, first on the cost savings program, you now expect to exceed the prior $250 million target, maybe any more color on where the incremental savings are coming from more on the COGS or SG&A side? And where do you think you can get those expense levels to over time?

Yes. We're on track to exceed the plan like we talked about even here in fiscal 2026. I'd say we're driving a cultural shift and a different mindset around costs in our organization. And we really have a strong focus on continuous improvement. A lot of that incremental cost savings that you're seeing is actually hitting the cost side, supply chain side of things, more so than any other areas. Obviously, we've identified some additional costs as Jan comes in, does his onboarding as well as Jim, given Jim is going to be the one who's leading this for our organization, allow them to kind of take a look at where the opportunities are. And at the right time, we'll come back and share what any future cost savings plans might look like.

Okay. Great. And then the topic of portfolio management has been brought up recently. Maybe just more on how you're thinking about your positioning right to win and opportunities in certain regions and I guess, general strategic approach going forward?

Yes. Obviously, a big piece of our Focus to Win plan is prioritizing markets and channels, and we're doing that. As Jan comes in, he has a really strong background in those international markets. He's been the CEO and led organizations in a number of the markets in which we operate in. He's going through his onboarding process right now. He's assessing our different businesses around the globe. He'll be on the call next quarter and be able to give kind of his perspective and insights and what he's seeing. But we continue to look at our business overall and really focused on what are the markets where we have the right to win long term. And what adjustments we need to make within our markets to make sure we're successful and drive our business and meet our customers' expectations long term.

And we'll go to our last question, Carla Casella with JPMorgan.

Your tariff discussion was very helpful. I'm just wondering if you can also talk to the Mid-East conflict and the costs you could potentially see in higher transportation or key raw materials and if you're seeing any disruption there on the cost side?

Yes. I think the impact in the Middle East is ultimately going to depend on the length and severity of the conflict -- there's 3 areas of risk that I see in the Middle East. One is obviously lower volumes to the region. I think Bernadette shared in the prepared remarks that the Middle East makes up high single-digit percent of our international segment. And obviously, if volumes are -- if it becomes a prolonged conflict, that does potentially have some impacts on inventories. But for me, as I look at this, it's more around the increased volatility in some of the commodities, things like packaging, fuel and so forth. And that impacts markets around the globe. Obviously, we'll -- we're working through our annual operating plan right now. We'll come back in fiscal -- or next quarter and talk about what the fiscal '27 outlook looks like and communicate at that point what those risks could be. But we feel good about the opportunities and the abilities that we have in order to pass through some of those costs as they come through.

Yes. And Mike, the only other thing I would add on the cost side is that as part of our broader risk management framework, we do hedge portions of our key inputs to reduce volatility, now that doesn't eliminate all of the price risk, but the combination of our hedging program and diversified sourcing and our commercial agreements gives us that balanced level of protection.

That will conclude our Q&A session. I'll turn the conference back to Debbie Hancock for any additional or closing remarks.

Thank you, Lisa, and thank you to everyone for joining us today. The replay of the call will be available on our website later this afternoon. And I hope everyone has a good rest of your day.

And that concludes today's call. Thank you for your participation. You all may disconnect now, and have a great day.