Lamb Weston Holdings Inc.
07/23/2025 | Press release | Distributed by Public on 07/23/2025 11:43
Annual Report for Fiscal Year Ending May 25, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of our results of operations and financial condition, which we refer to in this filing as "MD&A," should be read in conjunction with the audited financial statements and the notes thereto. Discussions of fiscal 2023 items and fiscal year comparisons between fiscal 2024 and 2023 that are not included in this Form 10-K can be found in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended May 26, 2024, which we filed with the SEC on July 24, 2024. Results for the fiscal year ended May 25, 2025 are not necessarily indicative of results that may be attained in the future.
Our MD&A is based on financial data derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). We have also presented Adjusted EBITDA, Adjusted Gross Profit, Adjusted Selling, General and Administrative expenses ("SG&A"), and Adjusted Equity Method Investment Earnings, each of which is considered a non-GAAP financial measure, to supplement the financial information included in this report. Refer to "Non-GAAP Financial Measures" below for the definitions of Adjusted EBITDA, Adjusted Gross Profit, Adjusted SG&A, and Adjusted Equity Method Investment Earnings, and a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, net income, gross profit, SG&A, and equity method investment earnings, as applicable. For more information, refer to the "Results of Operations" and "Non-GAAP Financial Measures" sections below.
Overview
Lamb Weston is a leading global producer, distributor, and marketer of value-added frozen potato products. We are the number one supplier of value-added frozen potato products in North America and are a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets. We offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent most of our value-added frozen potato product portfolio.
During fiscal 2025, we operated our business in two reportable segments: North America and International. We report net sales and adjusted EBITDA by segment and on a consolidated basis. Net sales and Segment Adjusted EBITDA are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. For additional information on our reportable segments, see "Non-GAAP Financial Measures" below and Note 13, Segments, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in this Form 10-K.
Executive Summary
We ended the year with improved trends in customer wins and retention, leading to volume growth for the full year. Inflationary pressure persisted in fiscal 2025, which contributed to consumer uncertainty and lower overall restaurant traffic and frozen potato demand. To compete in this highly competitive environment, we supported our customers with price and trade investments. Halfway through the year, we made important changes to adapt to the evolving environment and put our business on a path back to growth. We announced our FY25 Restructuring Plan, which included the permanent closure of one of our manufacturing facilities, temporarily curtailing certain production lines across our manufacturing network in North America, and other operating and capital expense reductions. We continue to make important changes to adapt to the evolving environment. On July 23, 2025, we outlined "Focus to Win," a new strategic plan to focus on four pillars including (1) prioritizing markets and channels, (2) strengthening customer partnerships, (3) achieving executional excellence and (4) setting the pace for industry-leading innovation. This strategic plan includes our Cost Savings Program which is expected to deliver at least $250 million of annualized run rate savings by the end of fiscal year 2028. Approximately $200 million of these annualized cost savings are expected by the end of fiscal year 2027. In addition, we expect to generate approximately $120 million of working capital improvements, compared to current levels, by the end of fiscal 2027. In connection with the Cost Savings Program, we expect to recognize total pre-tax cash charges of $70 million to $100 million, most of which will be paid in fiscal 2026.
A detailed review of our fiscal 2025 performance compared to fiscal 2024 is included in the "Results of Operations" and "Non-GAAP Financial Measures" sections below. For more information related to the FY25 Restructuring Plan, see Note 4, Restructuring, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements" of this Form 10-K.
Outlook
In fiscal 2026, we expect continued pressure on consumers from macroeconomic and geopolitical factors and that global restaurant traffic will remain approximately even with fiscal 2025 levels. We believe customers and consumers will continue to prioritize french fries as a menu and at home item and that our customer win momentum that began in the second half of fiscal 2025 and the contribution of a 53rd week in fiscal 2026, with the additional week falling in the fourth quarter, will increase sales volumes, despite continued soft restaurant traffic. We expect earnings will decline as they are pressured by carryover price investments and new investments in fiscal 2026, overall input cost increases, net of the benefit of lower raw potato costs, incremental depreciation from the capacity expansions in the Netherlands and Argentina, and increased compensation and benefits as we normalize incentives, which will only be partially offset by benefits from the FY25 Restructuring Plan and Cost Savings Program. Our outlook does not include additional impacts of evolving trade policies, including additional changes in tariffs and retaliatory countermeasures.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). Accounting Standards Codification ("ASC") 740, Income Taxes, requires the effects of changes in tax rates and laws to be recognized in the period in which the legislation is enacted. We expect the OBBBA to primarily provide cash tax timing benefits with no material impact to the effective tax rate. We are evaluating the OBBBA impact and will provide further information related to the estimated effect on our fiscal 2026 financials in our Form 10-Q for the quarter ending August 24, 2025.
Results of Operations
Fiscal Year Ended May 25, 2025 Compared to Fiscal Year Ended May 26, 2024
| For the Fiscal Years Ended May | ||||||||||||||||||||
| (in millions, except percentages) | 2025 | 2024 |
% Increase (Decrease) |
|||||||||||||||||
| Segment net sales | ||||||||||||||||||||
| North America | $ | 4,265.2 | $ | 4,363.2 | (2)% | |||||||||||||||
| International | 2,186.1 | 2,104.4 | 4% | |||||||||||||||||
| $ | 6,451.3 | $ | 6,467.6 | -% | ||||||||||||||||
| Segment Adjusted EBITDA | ||||||||||||||||||||
| North America | $ | 1,101.4 | $ | 1,263.1 | (13)% | |||||||||||||||
| International | $ | 253.7 | $ | 331.9 | (24)% | |||||||||||||||
Net Sales
Lamb Weston's net sales declined $16.3 million to $6,451.3 million in fiscal 2025. Price/mix declined 2%, reflecting the impact of planned investments in price and trade support in a competitive environment to attract and retain customers globally. The decrease in price/mix was mostly offset by a 2% increase in volume, primarily in the International segment and included fully replacing the combined regional, small, and retail customer volume lost, primarily in North America, in the prior year during the Company's transition to a new ERP system in the second half of fiscal 2024. Volume increased despite a decrease in global restaurant traffic in fiscal 2025, compared to fiscal 2024.
North America segment net sales declined $98.0 million, or 2%, to $4,265.2 million. Price/mix declined 3%, reflecting planned investments in price and trade driven by an increasingly competitive market, with moderate offsets in channel and product mix. Despite a low single-digit percentage point decline related to softer North America restaurant traffic in fiscal 2025, compared with fiscal 2024, volume increased 1%. Increased regional, small, and retail customer volume more than offset low single-digit volume declines with large chain customers, in North America, which were primarily in the first half of the year.
International segment net sales increased $81.7 million, or 4%, to $2,186.1 million. Volume increased 5%, which reflects growth related to new customer wins and growth with existing customers in all regions. Price/mix declined 1%, which reflects pricing actions in key international markets in response to the continued competitive environment.
Gross Profit
Gross profit declined $368.1 million versus the prior fiscal year to $1,398.6 million. Adjusted Gross Profit declined $298.2 million versus the prior fiscal year to $1,460.5 million, driven primarily by increased manufacturing costs per pound, including higher factory burden absorption. In response to softer restaurant traffic and to reduce inventory levels, we temporarily curtailed production in fiscal 2025. In addition, key input costs increased low-single-digits, including: potato, labor, and packaging costs, as well as $57.6 million of incremental depreciation expense largely associated with the Company's recent capacity expansions in China, the U.S. and the Netherlands. Transportation and warehousing costs increased in the low double-digits, primarily related to higher warehouse inventories. The increased costs were partially offset by lapping an estimated $88 million of pre-tax losses associated with the ERP transition in fiscal 2024; $85.1 million pre-tax charge for the write-off of excess raw potatoes; and an estimated $9 million incremental pre-tax loss related to the voluntary product withdrawal initiated in the fourth quarter of the prior year.
Selling, General and Administrative Expenses
SG&A declined $67.9 million versus the prior fiscal year to $633.5 million. Adjusted SG&A declined $30.3 million to $643.9 million, primarily related to lapping higher expenses associated with the ERP transition in the prior year, a $13.9 million decrease in advertising and promotion expenses, and the benefit of cost savings associated with the FY25 Restructuring Plan, partially offset by $14.6 million of incremental depreciation and amortization expense primarily related to our ERP transition in the prior year and higher compensation and benefit expenses.
Restructuring Expense
Restructuring expense was $100.0 million, which was related to the FY25 Restructuring Plan. For more information, see Note 4, Restructuring, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in this Form 10-K.
Net Income, Adjusted EBITDA and Segment Adjusted EBITDA
Net income was $357.2 million, down $368.3 million versus the prior fiscal year, and diluted EPS was $2.50, down $2.48 from the prior fiscal year.
Adjusted EBITDA declined $196.2 million from the prior fiscal year to $1,220.5 million, reflecting lower Adjusted Gross Profit partially offset by lower Adjusted SG&A.
North America Segment Adjusted EBITDA declined $161.7 million to $1,101.4 million, reflecting investments in price and trade, higher manufacturing costs per pound (which largely reflected higher factory burden absorption related to temporarily curtailed production as part of our effort to reduce inventory to current demand levels), and higher transportation and warehousing costs per pound. These cost increases were partially offset by lapping an approximately $83 million negative impact of the ERP transition in the prior year and lower Adjusted SG&A in fiscal 2025, including a $9.5 million decrease in advertising and promotion expenses.
International Segment Adjusted EBITDA declined $78.2 million to $253.7 million. Higher net sales and lower Adjusted SG&A were offset by an increase in manufacturing costs per pound, including mid-to-high single-digit increases in raw potato costs, primarily in the first half of the year and incremental costs related to the start-up of the new production line in the Netherlands. Higher warehouse inventories also led a mid-to-high single-digit increase in warehousing costs. These costs more than offset lapping a $9.9 million charge for the write-off of excess raw potatoes, approximately $9 million, net of allocated losses related to the voluntary product withdrawal, and an approximately $5 million negative impact related to the ERP transition in the prior year.
Interest Expense, Net
Interest expense, net in fiscal 2025 increased $44.2 million, or 33%, to $180.0 million. The increase in interest expense, net was driven by a decline of $23.6 million of capitalized interest in fiscal 2025, compared to the prior fiscal year, and higher borrowings during the year. The increase in our total debt reflected increased borrowing under a new term loan agreement. For more information, see Note 8, Debt and Financing Obligations, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in this Form 10-K.
Income Taxes
Our effective tax rate for fiscal 2025 was 28.6%, versus 24.1% in fiscal 2024, with the increase largely attributable to foreign losses without tax benefits and a higher proportion of overall earnings in our International segment. Our effective tax rate varies from the U.S. statutory tax rate of 21% primarily due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items.
For further information on income taxes, see Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in this Form 10-K.
Equity Method Investment Earnings
Equity method investment earnings from unconsolidated joint ventures were $15.2 million and $26.0 million for fiscal 2025 and 2024, respectively. The results for the current and prior fiscal years reflect earnings associated with the Company's 50 percent interest in Lamb Weston/RDO Frozen, an unconsolidated potato processing joint venture in Minnesota.
Adjusted Equity Method Investment Earnings was slightly down at $25.7 million compared to $26.0 million the prior fiscal year. The prior fiscal year included a $10.8 million charge for the write-off of excess raw potatoes. The decrease in equity method investment earnings reflects lower net sales and higher manufacturing costs per pound, primarily related to softer restaurant traffic contributing to lower production and increased factory burden absorption.
Liquidity and Capital Resources
The primary source of our liquidity is from cash flow from operations. We generated $868.3 million of cash from operations in fiscal 2025. We use cash from operations to fund our capital expenditures, acquisitions, and debt service. A substantial portion of our operating cash flow has been returned to shareholders through dividends and share repurchases.
We ended fiscal 2025 with $70.7 million of cash and cash equivalents and approximately $1.2 billion of availability under our revolving credit facility. We believe we have sufficient liquidity to meet our business requirements for at least the next 12 months and the foreseeable future thereafter.
Cash Flows
Below is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities:
| For the Fiscal Years Ended May | ||||||||||||||
| (in millions, except percentages) | 2025 | 2024 | ||||||||||||
| Net cash flows provided by (used for): | ||||||||||||||
| Operating activities | 868.3 | 798.2 | ||||||||||||
| Investing activities | (648.0) | (984.1) | ||||||||||||
| Financing activities | (225.0) | (48.0) | ||||||||||||
| (4.7) | (233.9) | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 4.0 | 0.5 | ||||||||||||
| Net decrease in cash and cash equivalents | (0.7) | (233.4) | ||||||||||||
| Cash and cash equivalents, beginning of period | 71.4 | 304.8 | ||||||||||||
| Cash and cash equivalents, end of period | 70.7 | 71.4 | ||||||||||||
Operating Activities
During fiscal 2025, cash provided by operating activities increased $70.1 million to $868.3 million, compared to $798.2 million for fiscal 2024. The increase primarily related to $349.1 million of favorable changes in working capital, primarily attributable to reduced inventories and a favorable change in accrued liabilities related to changes in compensation and benefit accruals in the prior year.Inventory days on hand at the end of fiscal 2025 declined eight days compared with fiscal 2024. This was partially offset by a$279.0 million decrease in net income, adjusted for non-cash income and expenses. See "Results of Operations" in this MD&A for more information related to the decreasein income from operations.
Investing Activities
Investing activities used $648.0 million of cash in fiscal 2025, compared with $984.1 million in fiscal 2024. The decreasewas primarily attributable to reduced cash expenditures in fiscal 2025 as our strategic capacity expansion projects in China and the U.S. were completed in fiscal 2024 and our capacity expansion in the Netherlands was completed in the first half of fiscal 2025. We expect our capacity expansion project in Argentina will begin production in August 2025.
We expect to use approximately $500 million for investing activities in fiscal 2026, primarily related to maintenance and facility modernization, as well as expenditures related to environmental projects largely focused on wastewater treatment at our production facilities.
Financing Activities
During fiscal 2025, we used $225.0 million of net cash for financing activities. We had net proceeds of $42.8 million from our revolving credit facility and other short-term credit facilities held by subsidiaries and $500 million of proceeds from our amended term loan facility that was used primarily to repay an existing term loan facility and outstanding borrowings under our revolving credit facility. We used $294.4 million to repurchase an aggregate of 4,867,449 shares at a weighted-average price of $57.94 per share and withheld 216,317 shares from employees to cover income and payroll taxes on equity awards that vested during the period. In addition, we paid $206.9 million in cash dividends to common stockholders.
During fiscal 2024, proceeds from short-term borrowings and debt issuances were $756.9 million, of which $164.9 million were short-term and $592.0 million related to upsizing our term loan borrowing capacity in connection with entering into a new term loan credit agreement in May 2024. We repaid $401.1 million of debt and financial obligations, which primarily included repayments towards the Term A-2 loan facility and Euro loan facility in connection with entering into new term loan and revolving credit agreements. We used $225.3 million of cash to repurchase 2,294,654 shares of our common stock at an average price of $91.51 per share, and we withheld 146,259 shares from employees to cover income and payroll taxes on equity awards that vested during the year. In addition, we paid $174.0 million in cash dividends to common stockholders.
For more information about our debt, including among other items, our revolving credit agreement, term loan facilities, interest rates, maturity dates, and covenants, see Note 8, Debt and Financing Obligations, of the Notes to the Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. At May 25, 2025, we were in compliance with all covenants contained in our credit agreements.
Obligations and Commitments
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease agreements, potato supply agreements, and unconditional purchase obligations. The unconditional purchase obligations are enforceable and legally binding arrangements entered into in the normal course of business to ensure adequate levels of sourced product are available.
A summary of our material cash requirements for our known contractual obligations as of May 25, 2025 are as follows:
| (in millions) | Total | Payable within 12 Months | ||||||||||||
| Short-term borrowings and long-term debt, including current portion (a) | $ | 4,148.2 | $ | 448.6 | ||||||||||
| Interest on long-term debt (b) | 876.9 | 184.4 | ||||||||||||
| Leases (a) | 150.5 | 28.8 | ||||||||||||
| Purchase obligations and capital commitments (a) | 1,011.0 | 309.0 | ||||||||||||
| Total | $ | 6,186.6 | $ | 970.8 | ||||||||||
_____________________________________________________
(a)See the below Notes to the Consolidated Financial Statements included in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for more information.
•Short-term borrowings and long-term debt, including current portion. See Note 8, Debt and Financing Obligations, for more information on debt payments and the timing of expected future payments.
•Leases. See Note 9, Leases, for more information on our operating and finance lease obligations and timing of expected future payments. The total obligation amount for leases includes imputed interest.
•Purchase obligations and capital commitments. See Note 14, Commitments, Contingencies, Guarantees, and Legal Proceedings, for more information on our purchase obligations and the timing of future payments and capital commitments in connection with the expansion and replacement of existing facilities and equipment.
(b)Amounts represent estimated future interest payments assuming our long-term debt is held to maturity and using interest rates in effect as of May 25, 2025. This does not reflect a reduction for future estimated capitalized interest amounts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of May 25, 2025 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Estimates
Critical accounting estimates are those that are most important to the portrayal of our financial condition and operating results. These estimates require management's most difficult, subjective, or complex judgments. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP with no need for the application of our judgment. In certain circumstances, however, the preparation of the Consolidated Financial Statements in conformity with GAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. We have identified the estimates described below as our critical accounting estimates. See Note 1 to the Consolidated Financial Statements for a detailed discussion of significant accounting policies. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our Board.
We have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our Consolidated Financial Statements may be affected.
Sales Incentives and Trade Promotion Allowances
We promote our products with advertising, consumer incentives, and trade promotions. Sales promotions include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. The estimates for sales incentives are based principally on historical sales and redemption rates, influenced by judgments about current market conditions such as competitive activity in specific product categories.
Trade promotion programs include introductory marketing funds such as slotting fees, cooperative marketing programs, temporary price reductions, and other activities conducted by our customers to promote our products. The costs of these programs are recognized as a reduction to revenue with a corresponding accrued liability. The estimate of trade promotions is inherently difficult due to information limitations as the products move beyond distributors and through the supply chain to operators. Estimates made by management in accounting for these costs are based primarily on our historical experience with marketing programs, with consideration given to current circumstances and industry trends and include the following: quantity of customer sales, timing of promotional activities, current and past trade-promotion spending patterns, the interpretation of historical spending trends by customer and category, and forecasted costs for activities within the promotional programs.
The determination of sales incentive and trade promotion costs requires judgment and may change in the future as a result of changes in customer demand for our products and promotion participation, particularly for new programs related to the introduction of new products. Final determination of the total cost of promotion is dependent upon customers providing information about proof of performance and other information related to the promotional event. Because of the complexity of some of these trade promotions, the ultimate resolution may result in payments that are different from our estimates. As additional information becomes known, we may change our estimates. At May 25, 2025 and May 26, 2024, we had $88.2 million and $90.0 million, respectively, of accrued trade promotions payable recorded in "Accrued liabilities" on our Consolidated Balance Sheets.
Income Taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.
Inherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Management judgments are required for the following items:
•Management reviews deferred tax assets for realizability. Valuation allowances are established when management believes that it is more likely than not that some portion of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision.
•We establish accruals for unrecognized tax benefits when, despite the belief that our tax return positions are fully supported, we believe that an uncertain tax position does not meet the recognition threshold of ASC 740, Income Taxes. These contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, the expiration of the statute of limitations for the relevant taxing authority to examine a tax return, case law and emerging legislation. While it is difficult to predict the final outcome or timing of resolution for any particular matter, we believe that the accruals for unrecognized tax benefits at May 25, 2025, reflect the estimated outcome of known tax contingencies as of such date in accordance with accounting for uncertainty in income taxes under ASC 740.
•We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. We have not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest such earnings and basis differences. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of our non-U.S. and U.S. operations. Material changes in our estimates of cash, working capital, and investment needs in various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which could be subject to applicable non-U.S. income and withholding taxes. While we believe the judgments and estimates discussed above and made by management are appropriate and reasonable under the circumstances, actual resolution of these matters may differ from recorded estimated amounts. Further information on income taxes is provided in Note 3, Income Taxes, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
New and Recently Issued Accounting Standards
For a listing of new and recently issued accounting standards, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Non-GAAP Financial Measures
To supplement the financial information included in this report, we have presented Adjusted EBITDA, Adjusted Gross Profit, Adjusted SG&A, and Adjusted Equity Method Investment Earnings, each of which is considered a non-GAAP financial measure. Management uses these non-GAAP financial measures to assist in analyzing what management views as our core operating performance for purposes of business decision making. Management believes that presenting these non-GAAP financial measures provide investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding impacts of foreign currency exchange rates and unrealized mark-to-market derivative gains and losses and other items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our core operating performance across periods, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating our financial results. In addition, we believe that the presentation of these non-GAAP financial measures, when considered together with their most directly comparable GAAP financial measure and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting our underlying business than could be obtained absent these disclosures.
The non-GAAP financial measures presented in this report should be viewed in addition to, and not as alternatives for, financial measures prepared in accordance with GAAP that are also presented in this report. These measures are not substitutes for their comparable GAAP financial measures, such as net income, gross profit, SG&A, equity method investment earnings, or other measures prescribed by GAAP, and there are limitations to using non-GAAP financial measures. For example, the non-GAAP financial measures presented in this report may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way we do.
The following table reconciles net income to Adjusted EBITDA:
| For the Fiscal Years Ended May | ||||||||||||||
| (in millions) | 2025 | 2024 | ||||||||||||
| Net income (a) | $ | 357.2 | $ | 725.5 | ||||||||||
| Interest expense, net | 180.0 | 135.8 | ||||||||||||
| Income tax expense | 143.1 | 230.0 | ||||||||||||
| Income from operations including equity method investment earnings | 680.3 | 1,091.3 | ||||||||||||
| Depreciation and amortization (b) | 378.2 | 306.2 | ||||||||||||
| Unrealized derivative gains | (23.1) | (24.9) | ||||||||||||
| Foreign currency exchange losses | 15.2 | 28.6 | ||||||||||||
| Blue chip swap transaction gains | (21.1) | (18.0) | ||||||||||||
| Items impacting comparability: | ||||||||||||||
| Restructuring Plan and other expenses | 185.8 | - | ||||||||||||
| Shareholder activism expense | 5.2 | - | ||||||||||||
| Inventory step-up from acquisition | - | 20.7 | ||||||||||||
| Integration and acquisition-related items, net | - | 12.8 | ||||||||||||
| Adjusted EBITDA | $ | 1,220.5 | $ | 1,416.7 | ||||||||||
_____________________________________________________
(a)Net income included:
i.Restructuring plan expenses of $185.8 million ($143.7 million after-tax, or $1.01 per share) related to the FY25 Restructuring Plan announced on October 1, 2024, for fiscal 2025. Further information on the FY25 Restructuring Plan is provided in Note 4, Restructuring, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
ii.Shareholder activism expense of $5.2 million ($4.0 million after-tax, or $0.03 per share). for fiscal 2025.
iii.A $23.1 million unrealized gain ($17.2 million after-tax, or $0.12 per share) and a $24.9 million unrealized gain ($18.6 million after-tax, or $0.13 per share) related to mark-to-market adjustments associated with commodity and currency hedging contracts for fiscal 2025 and 2024, respectively;
iv.Foreign currency exchange losses of $15.2 million ($10.9 million after-tax, or $0.07 per share) and $28.6 million ($21.4 million after-tax, or $0.14 per share) for fiscal 2025 and 2024, respectively.
v.Blue chip swap transaction gains of $21.1 million ($20.0 million after-tax, or $0.14 per share) and $18.0 million ($13.4 million after-tax or $0.09 per share) for fiscal 2025 and 2024, respectively;
vi.In fiscal 2024, we recorded a $12.8 million loss ($9.6 million after-tax, or $0.07 per share) related to actions taken to mitigate the effect of changes in currency rates on the purchase of the remaining equity interest in LW EMEA, net of other acquisition-related costs;
vii.In fiscal 2024, we recorded a $20.7 million ($15.4 million after-tax, or $0.11 per share) charge related to the step-up and sale of inventory following completion of the LW EMEA Acquisition; and
viii.In fiscal 2025, we recorded an estimated $31 million loss related to the voluntary product withdrawal that was initiated in the fourth quarter of fiscal 2024. The total charge to reporting segments was approximately $19 million to the North America segment and approximately $12 million to the International segment. Fiscal year 2024 included an estimated $40 million loss ($30 million after-tax, or $0.20 per share) related to the voluntary product withdrawal. The total charge to the reporting segments was approximately $19 million to the North America segment and approximately $21 million to the International segment.
ix.In fiscal 2024, we estimate that we incurred approximately $95 million of losses ($72 million after-tax) related to the ERP transition in the fiscal third quarter, including approximately $83 million in the North America segment, approximately $5 million in the International segment, and $7 million of unallocated corporate costs.
x.In fiscal 2024, we recorded a $95.9 million charge ($72.9 million after-tax, or $0.50 per share) related to a write-off of excess raw potatoes. The total charge to the reporting segments was as follows: $86.0 million to the North America segment and $9.9 million to the International segment.
(b)Depreciation and amortization included interest expense, income tax expense, and depreciation and amortization from equity method investments of $8.2 million and $8.3 million for fiscal 2025 and 2024, respectively.
The following tables reconcile gross profit to Adjusted Gross Profit, SG&A to Adjusted SG&A, and Equity Method Investment Earnings to Adjusted Equity Method Investment Earnings:
| (in millions) | Gross Profit | SG&A | Equity Method Investment Earnings | |||||||||||||||||
| Fiscal Year Ended May 25, 2025 | ||||||||||||||||||||
| As reported | $ | 1,398.6 | $ | 633.5 | $ | 15.2 | ||||||||||||||
| Unrealized derivative gains and losses | (13.4) | 9.7 | - | |||||||||||||||||
| Foreign currency exchange losses | - | (15.2) | - | |||||||||||||||||
| Blue chip swap transaction gains | - | 21.1 | - | |||||||||||||||||
| Items impacting comparability: | ||||||||||||||||||||
| Restructuring Plan and other expenses | 75.3 | - | 10.5 | |||||||||||||||||
| Shareholder activism expense | - | (5.2) | - | |||||||||||||||||
| Total adjustments | 61.9 | 10.4 | 10.5 | |||||||||||||||||
| Adjusted (a) | $ | 1,460.5 | $ | 643.9 | $ | 25.7 | ||||||||||||||
| Fiscal Year Ended May 26, 2024 | ||||||||||||||||||||
| As reported | $ | 1,766.7 | $ | 701.4 | $ | 26.0 | ||||||||||||||
| Unrealized derivative gains and losses | (28.7) | (3.8) | - | |||||||||||||||||
| Foreign currency exchange losses | - | (28.6) | - | |||||||||||||||||
| Blue chip swap transaction gains | - | 18.0 | - | |||||||||||||||||
| Items impacting comparability: | ||||||||||||||||||||
| Inventory step-up from acquisition | 20.7 | - | - | |||||||||||||||||
| Integration and acquisition-related items, net | - | (12.8) | - | |||||||||||||||||
| Total adjustments | (8.0) | (27.2) | - | |||||||||||||||||
| Adjusted (a) | $ | 1,758.7 | $ | 674.2 | $ | 26.0 | ||||||||||||||
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(a)See the footnotes in the reconciliation of net income to Adjusted EBITDA above for a discussion of the items impacting comparability.
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