A major supplier of McDonald’s french fries posted weaker-than-expected quarterly earnings, blaming rising manufacturing costs and plunging fry demand as consumers appear less able to afford fast food meals.
Key Facts:
– Lamb Weston, a key McDonald’s supplier, reported adjusted earnings of 66 cents per share, missing analysts’ estimates of $1.02.
– Management cut full-year guidance for the second consecutive quarter due to lower global frozen potato demand and rising costs.
– The company’s CEO, Tom Werner, announced a weaker outlook, citing persistent challenges expected through fiscal 2025 and into 2026.
– Lamb Weston’s CEO will be replaced by Michael Smith, the current chief operating officer.
– McDonald’s is reworking its value menu amid inflation-driven shifts in customer spending patterns.
The Rest of The Story:
Lamb Weston, known for providing McDonald’s with its signature fries, struggled to meet financial targets this quarter.
The company’s results fell short due to rising production costs and a noticeable decline in global fry demand.
Executives now foresee a challenging market environment extending into the next few years, as consumers show less willingness to pay higher prices.
Against this backdrop, McDonald’s is attempting to adapt, reintroducing a more affordable meal structure to meet the needs of customers squeezed by inflation.
The burger chain’s plan to overhaul its value offerings in early 2025 suggests a shift in the fast-food industry, where many diners now seek more budget-friendly options.
It's over
🍟French fry giant Lamb Weston warns of "continued near-term softening of global frozen potato demand below historical rates"
LW shares down 19% pic.twitter.com/O9Rn6Wt0ER
— Sam Ro 📈 (@SamRo) December 19, 2024
Commentary:
This earnings disappointment and the broader downturn in fast-food spending reflect the real-world consequences of so-called “Bidenomics” and its enormous federal outlays.
When a government floods the economy with spending, higher inflation often follows, raising everyday prices.
As a result, many consumers find themselves pressed to limit luxuries, including convenient meals or brand-name fast-food options.
The crunch created by inflation means that patrons are less inclined to splurge, even on something as simple as a side of fries.
Unable to maintain past spending habits, they look for deals or scale back, forcing companies like Lamb Weston and McDonald’s to recalibrate.
This scenario provides a telling example: when massive government spending meets everyday consumers, the downstream effect can be a painful recalibration for both pocketbooks and corporate bottom lines.
The Bottom Line:
Lamb Weston’s poor results and McDonald’s renewed focus on affordable meal deals reveal how inflation, driven by heavy government spending, can reshape consumer habits.
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The era of easy indulgences may be fading, leaving fast-food giants and suppliers to adapt.