Lamb Weston trimmed its annual forecasts and replaced its CEO with insider Michael Smith on Thursday, following pressure from activist investor Jana Partners to revamp its top management or sell itself.
Its shares tumbled 15% in early trading. They have lost about 28% this year amid the company's struggles with persistent weakness in demand for its frozen potato products.
Jana Partners called the decision to swap the CEO for an insider 'complicit in its widespread operational and strategic debacles is just the latest stick in the eye.' The investor again urged for a significant board change or sale.
The company did not immediately respond to a request for comment on Jana Partners' statement.
Smith, currently the chief operating officer, will take over from Thomas Werner on January 3, the company said. Smith joined Lamb Weston in 2007 and became the COO in May 2023.
"Feels like a panicked move," said Jefferies analyst Rob Dickerson in a note on the CEO change.
Jana Partners revealed a roughly 5% stake two months ago and wrote a letter to Lamb Weston's board this week, saying the company's management had wasted a chance to sustain and grow shareholder value.
The company's decision to hire internally was 'surprising' and suggests the board had a detailed succession plan in place for some time, said Arun Sundaram, senior equity analyst at CFRA Research.
Demand for Lamb Weston's frozen potato sides has weakened from US restaurants and retailers. The company on Thursday cited value wars among fast-food chains for taking a bite out of volumes in the U.S., with consumers typically trading down to smaller serving sizes.
Lamb Weston will look to further reduce manufacturing and supply chain costs, as well as operating expenses to improve profitability, as it executes a cost-savings plan announced in October, outgoing CEO Werner said.
The company cut its fiscal 2025 adjusted profit expectations to $3.05 to $3.20 per share from $4.15 to $4.35, and lowered its annual net sales target to between $6.35 billion (€6.12 billion) and $6.45 billion (€6.21 billion).
