S&P lowers Lamb Weston rating to ’BB’ with stable outlook amid elevated debt

Investing.com -- S&P Global Ratings has downgraded Lamb Weston Holdings Inc (NYSE: LW) to 'BB' from 'BB+', pushing the packaged potato giant deeper into high-yield territory amid lingering leverage and persistent profitability pressures. The rating agency cited ongoing restructuring costs, input cost inflation, and heavy promotional pricing as factors delaying meaningful earnings recovery.

The downgrade reflects expectations that Lamb Weston’s adjusted leverage will remain elevated near 3.7x through fiscal 2028, well above the agency's previous forecasts. While top-line momentum and volume growth in North America are showing signs of improvement, S&P highlighted that profitability continues to suffer from structural and operational headwinds.

Restructuring efforts under the company’s "Focus to Win" initiative have racked up approximately $332 million in pre-tax charges through the first quarter of fiscal 2027, with limited net benefits flowing to the bottom line. Expense offsets, including freight and ingredient inflation, plant underutilization in international markets, and heavy customer trade support, have effectively absorbed realized cost savings.

S&P noted a half-turn discrepancy between its adjusted leverage metrics and Lamb Weston’s internal targets, driven largely by the exclusion of recurring restructuring costs in company-defined figures. First-quarter fiscal 2027 adjusted EBITDA fell 27% sequentially and 9% year-over-year, hitting a trailing 12-month trough of $1.049 billion.

S&P's outlook for the company remains stable, anchored by the expectation of modest EBITDA growth in fiscal 2027 alongside gradual operational stabilization. However, analysts cautioned that any potential EBITDA rebound could be tempered by discretionary share repurchases or capital allocations, slowing the path toward meaningful deleveraging.

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