Lamb Weston Holdings, Inc. (NYSE:LW) Q3 2020 Earnings Conference Call - Final Transcript
Apr 01, 2020 • 10:00 am ET
[Operator Instructions] We'll take our first question from Andrew Lazar with Barclays.
Good morning, everyone. Hope everyone is staying healthy on your end.
Good morning, Andrew.
Hi there. So Tom, Lamb Weston has obviously come through, by all measures, a pretty fantastic couple of years. Certainly, from an industry supply-demand perspective, almost utopic in certain ways, and I realize there's really not any precedent for this and much is still very fluid. But just as you think about this generally and thinking forward, with industry capacity having come online this year, and obviously that wasn't proved to not really be an issue given how strong demand was, but with now maybe a weakening of demand for some period of time, I guess, how would you at this stage see current events sort of impacting this -- what's been this really fantastic sort of supply-demand balance maybe closer in and then over a longer-term period of time?
Yeah, Andrew, it's all about the demand curve right now, and obviously it's a fluid situation, as I indicated in my remarks. And the most important thing is to -- that our customers are talking about is assured supply, and that's what we're focused on. The situation is fluid. How the demand curve continues and where it flattens out, it's difficult to forecast right now. So it's -- the most important thing is -- what I alluded to my remarks is, continue to make food products and feed people. And the indication that I talked -- that I'll talk about is, the fact that I do know is what we're seeing in China. So we had a downturn. We got through the worst of the crisis over there. At least as we know it today, production went down 50%. It's running about 70% demand. So, as I think about the market, it's all about assured supply, keeping our people safe, producing food safely, all those things. And it's going to take time to see how this all plays out.
Understood. Thank you for that. And then, just a quick follow-up. You've got some very large scaled facilities on the manufacturing side. And are there certain actions that you can take kind of in the near term when demand slows and sort of the volume leverage becomes -- the fixed cost absorption becomes less significant? Are there things that you can change in sort of the fixed cost base? Or really near term, should we expect like the detrimental margin, just given the lack of the kind of volume leverage you used to, to have like an outsized impact on profitability? Trying to get a sense for that, if at all possible. Thanks so much.
Yeah, Andrew, as you can imagine, we're looking at a lot of different scenarios in the production plan, based on how things are changing every week. So I will assure you that as we think through slowing production down, we're taking all the actions necessary to take cost out where we