Lamb Weston Holdings, Inc. (NYSE:LW) Q1 2021 Earnings Conference Call - Final Transcript
Oct 07, 2020 • 10:00 am ET
[Operator Instructions] And we'll take our first question from Chris Growe with Stifel.
Hi, good morning.
Good morning, Chris.
Hi. Thank you for the time. I just had a -- just to start off, I had a question for you on the gross margin. Obviously, it was a marked improvement sequentially, you talked about the leverage, you talked about -- you had lower COVID costs, as an example. One of the element of this that we've seen is stronger price and mix, and it was stronger than I expected, especially in the Foodservice division. I just want to get a sense of, it sounds like mix was positive, you have some pricing coming through as well. I guess, I'm trying to think about the first quarter versus the fourth quarter, and how important that component was to the gross margin performance or was it more the levers in that price mix improvement?
Yeah, Chris. This is Tom. The important thing comparing to Q4, it's really about the volume returning. And because Q4, we just fell off a cliff in Foodservice. And as you guys know, that's one of our stronger margin segments, so it's a combination of pricing flow through and really the restaurants reopening and volume starting to recover in Q1 that really drove the sequential improvement.
And in relation to that, from the pricing, you had the pricing in the fourth quarter, just was masked by mix. Is that the way to say it in that Foodservice division?
Well, yeah, absolutely. And it's -- we had significantly lower volume in Q4, so it was a major component of that. And as you look at -- we talked about Q1, it's really volume and price flowing through and volume returning like I said. Yes.
And in Foodservice, Chris, that -- it's not a -- that price increase comes through over time. I mean, it's not one customer. They're all different contracts, so they roll at a different time. So, some of that has a little bit more impact in Q1 than we saw in Q4.
Okay. I had just one more follow-on to that, and I'll let it go. But my question on the gross margin would be, as I think about normally from Q1 to Q2, you have a nice sequential improvement in gross margin. It sounds like that you have some residual costs coming through from utilizing your old crop, as an example, and utilizing the inventory. You have a tough comp as well. Do we think about the gross margin, is it just contingent on volume or is there enough in the cost side there that we should think about the gross margin maybe being a little softer in Q2 versus Q1, even though sequentially that normally is better [Speech Overlap]?
Yes, I think you're spot on, Chris, that -- one -- we've got some cost carryover that we don't normally have in Q2. Q2, normally, we're selling crop that was processed directly out of field, so