ラム・ウェストン（LW）2027年度第1四半期決算説明会：北米での成長を背景に業績予想を引き上げ

重要なポイント

• ラム・ウェストン（NYSE: LW）が発表した2027年度第1四半期の売上高は前年同期比1%増の16億7,000万ドルとなりました。販売数量は2%増加したものの、価格/製品ミックスの1.8%低下により一部相殺されました。
• 調整後希薄化後EPSは1%増の0.75ドルとなりました。調整後EBITDAは、主に欧州における前年度のジャガイモ収穫に伴う繰越コストの影響で5%減の2億8,600万ドルとなりましたが、会社の予想を上回って着地しました。
• 北米の売上高は、販売数量が7%増加したことで5%増加し、同セグメントとして7四半期連続の数量成長を記録しました。北米の調整後EBITDAは11%増加しました。
• インターナショナルの売上高は、販売数量の6%減少と価格/製品ミックスの2%低下を反映し、8%減少しました。セグメント調整後EBITDAは、欧州での販売数量減少とジャガイモコストの上昇により2,700万ドルに減少しました。
• 経営陣は2027年度の通期見通しを引き上げ、売上高成長率を1桁台前半、調整後EPSを3.05ドル〜3.35ドル、調整後EBITDAを11億2,500万ドル〜12億1,500万ドルとしました。
• 欧州では猛暑と乾燥によって収穫物の品質と収量が低下したため、ジャガイモの供給がひっ迫すると予想されています。経営陣は同地域の収穫量が約15%〜20%減少したと推定しており、欧州での値上げを実施しました。

主要財務データ

事業および業績状況

当四半期の成長は北米が牽引しました。ラム・ウェストンは、新規顧客の獲得、既存顧客でのシェア拡大、チキン主体のファストフードチェーン（QSR）への露出拡大から恩恵を受けました。米国のレストラン来店客数はほぼ横ばいだったものの、QSR全体の客数は1%減少した一方、チキン系QSRの客数は4%増加しました。

北米の価格/製品ミックスは1.7%低下し、2026年度第4四半期の2.4%低下から改善しました。経営陣は、残る下押し圧力の要因が多国籍チェーンやプライベートブランド（PB）商品の成長を含む価格設定と製品ミックスに均等に起因していると説明しました。同社は今年度の契約更新の約70%を完了しており、高い顧客維持率を保つとともに、インフレを反映した価格設定を行っています。

インターナショナル部門の業績は経営陣の長期目標を下回ったままとなっています。EMEA（欧州・中東・アフリカ）において、ラム・ウェストンはブルックハイゼンフォルスト工場の生産を停止し、顧客への製品供給を他の拠点へ移管しました。経営陣は、この変更により同地域の稼働率が約10ポイント上昇し、90%台前半まで向上すると見込んでいます。

中国では、多国籍QSRの需要、期間限定商品、生産性向上、工場の固定費吸収率改善に支えられ、売上高および調整後EBITDAが増加しました。中南米では新規事業の獲得が続き、アルゼンチンのマル・デル・プラタ工場での生産拡大が進みました。その他のアジア太平洋市場は、やや低調な新年度の滑り出しとなりました。

同社は、中国とアジア太平洋を単一のAPAC地域に統合することで、国際組織体制の単純化を進めています。また、意思決定と実行力の向上を目指し、管理階層の削減と管理範囲（スパン・オブ・コントロール）の拡大を行っています。

ラム・ウェストンは、全社的なゼロベース予算編成（ZBB）プロセスを開始しました。経営陣は、削減されたコストを利益率の拡大だけでなく、商業的機能、イノベーション、顧客向けリソースへの再投資にも活用する可能性があると述べています。

経営陣の見通し（ガイダンス）

売上高の見通しは、52週換算に調整した2026年度のベース売上高64億8,500万ドルを基準としています。経営陣は、売上成長が見込まれるものの、運転資本投資は前年同期比で概ね横ばいで推移すると予想しています。

2027年度第2四半期について、同社は売上高が1桁台前半のパーセンテージで増加し、調整後EBITDAは1桁台後半から2桁台前半のパーセンテージで増加すると見込んでいます。

経営陣は、前年度の新規顧客獲得が一巡することから、北米での販売数量の伸びは継続するものの鈍化すると予想しています。価格/製品ミックスの逆風は和らぎ、プラスに寄与する可能性があると見込まれています。

リスクと注目点

• ジャガイモ以外の原材料コストのインフレ率は、貨物輸送費、食用油、包装資材、原料などの圧迫により、経営陣が以前想定していた通期前提よりも約100ベーシスポイント（1%）高くなると予想されています。
• 欧州の猛暑と乾燥条件により、ジャガイモの品質と収量が低下しました。原材料コストの上昇と供給ひっ迫は、業界全体の稼働率を制限する可能性があります。
• 英国、フランス、イタリア、ドイツ全体における海外QSRの来店客数は1%減少した一方、スペインはほぼ横ばいでした。
• 欧州での販売数量増加の伸び悩み、競争的な価格設定、前年度のジャガイモコストが重石となり、海外の売上高と利益率は引き続き圧迫されています。
• 経営陣は、直近の顧客獲得が一巡するに伴い、北米における販売数量の伸びが鈍化すると予想しています。
• 原材料コストの上昇により棚卸資産の価値が増加する可能性があり、これが業績見通しの引き上げに伴ってキャッシュフローの見通しが引き上げられなかった理由の1つとなっています。

アナリストQ&Aの要点

北米における販売数量の持続性：経営陣は、同セグメントの業績について、成長著しいチキン系QSRへの露出、出荷充足率の改善、共同事業計画、イノベーション、新規顧客獲得によるものと説明しました。より高い成長見通しを持つチェーンを優先するため、顧客のセグメンテーションが活用されています。

価格設定とインフレ：経営陣は、一部の大型QSR契約に含まれるフォーミュラに基づく条項により、インフレの一部を転嫁できていると述べました。また、非契約の北米顧客および欧州市場においても価格改定を実施しました。

欧州の生産能力と供給：ラム・ウェストンは、今年度の欧州における主な制約要因は加工能力ではなくジャガイモそのものになると予想しています。経営陣は、契約済みの調達体制により予想される顧客需要を十分満たせる見込みであり、スポット市場での購入枠は通常よりも小さくなると述べました。

海外ポートフォリオの再編：同社は戦略見直しの「主戦場の選定」段階を終え、国別クラスターごとの実行計画を策定中です。経営陣は、このプロセスが最終的に提携や事業売却につながる可能性があるとし、2027年年初のインベスター・デイで詳細を公表する予定だと述べました。

ゼロベース予算編成：経営陣はZBBについて、単なる経費削減にとどまらず、当事者意識の文化を定着させるためのツールであると説明しました。同社はイノベーション、商業チーム、顧客エンゲージメントへの選択的な再投資を行う計画です。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to the Lamb Weston First Quarter Fiscal 2027 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead.

Debbie Hancock

Good morning, and thank you for joining us for Lamb Weston's First Quarter Fiscal 2027 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release that we will use for our discussion today. You can find the release on our website, lambweston.com. Slides will be shared during our webcast, and we will also be posted on the website after the call.

Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release and the appendix to our presentation.

Joining me today are Jan Craps, Executive Chair; Mike Smith, President and CEO; and Jim Gray, Chief Financial Officer. Each will provide prepared remarks, and then we'll be available to take your questions.

I will now turn the call over to Jan.

Jan Eli B. Craps

Thanks, Debbie, and good morning, everyone. I hope you're doing well. I'm encouraged to see the organization embracing the changes that we have been driving to make the company more performance-driven focused on value creation and deliberate on resources and capital allocation. I'm happy to see our efforts reflected in our strong first quarter results where we over delivered our Q1 expectations and built solid momentum for the remainder of the year.

I'm also pleased that we are today able to raise the full year forecast on net sales, adjusted EPS and adjusted EBITDA as our strategy continues to take hold customers are recognizing us for the value we deliver and our execution continues to solidify. During our full year results call, I shared my key priorities to drive value creation for Lamb Weston. Let me provide you a quick update from my perspective.

Regarding people, we have changed half of the executive leadership team, building the expertise and capabilities needed to drive our strategic priorities. We implemented target setting and compensation changes that drive individual and regional accountability and we just announced an organization redesign that drives significant improvements in speed of decision-making, simplicity and accountability, while delivering efficiencies that will improve our EBITDA margin and offer an opportunity to shift resources from back-office staff to frontline growth opportunities.

Regarding strategy, we have advanced into the auto wind stage after completing the where to play work. Each country cluster owner will have a clear mission and clarity how they contribute to Lamb Weston's growth algorithm. We have identified opportunities for best practice sharing through Lamb Weston's execution playbooks for elevated innovation impacts and for stronger joint business planning through new capabilities. Our work on where to play may lead to partnership and divestiture opportunities. It has already catalyzed capacity rationalization for us, which is also something we continue to see across the industry with capacity being shuttered and projects being canceled or postponed.

Regarding resources, we have now started implementing ZBB as a new muscle and routine for the company already realizing real savings in the first phase. Payment terms have seen improvements and the supply chain has organized its first savings championship where over 70 team members from across all regions and supply chain functions came together to benchmark and stretch beyond the planned cost savings initiatives. We have also identified opportunities to further deploy AI to enhance our operating performance. We are delivering on the promise of significant operational and cultural change at Lamb Weston. At the Board level, we also lead by example and reduced the Board to 11 members from 13. There's a lot more to come, though, and we will continue to update on the progress on these and other initiatives. We see real sizable opportunities to create more value for Lamb Weston, our growers, our team members, our partners and our shareholders.

We also see greater value in the company than what we believe is reflected in the current stock price. We are executing against our key initiatives with a great sense of urgency and confidence that the performance and ownership culture we are building will enable us to further differentiate Lamb Weston.

Now let me hand it over to Mike to discuss the progress the team has realized in Q1. Over to you, Mike.

Mike Smith

Thank you, Jan, and good morning, everyone. The Lamb Weston team delivered a solid start to fiscal 2027 with net sales, adjusted EPS and adjusted EBITDA results above our guidance. As a result, we are increasing our full year fiscal 2027 outlook.

Underlying these results are several favorable trends. We grew volume for the seventh consecutive quarter in North America and our exceeding end market growth. This in part reflects the fact that we over-index to chicken-focused QSRs. Price/mix improved as we lap targeted investments and customers recognize the value we bring. Supply/demand is harmonizing as industry capacity continues to rationalize and capacity expansion projects are increasingly delayed or shuttered, and Europe experiences a tighter crop environment. The team continues to raise the bar, strengthening our customer relationships, addressing challenges with urgency and agility in a dynamic market and relentlessly focusing on delivering improved financial performance.

North America had a good quarter. Sales volume, net sales, gross margin and segment adjusted EBITDA dollars all improved year-over-year and were ahead of expectations. International segment performance met our expectations, but is below our long-term aspirations. Segment adjusted EBITDA increased sequentially versus fourth quarter. We continue to control what is within our control and take action to better position our business for long-term success. Our cost savings program remains robust and on track. These aggressive programs have permanently lowered our cost of operating while building new capabilities and a culture focused on costs and process improvement. We are successfully executing our Focus to Win strategy. demonstrating positive results and positioning us for improved performance long term.

Our North America business started the year with good momentum with existing customers and fueled by new wins. Over the past year, we have added several growing customers, expanded business with existing customers, and we have built a strong mix of sales across QSR restaurant channels. Our focus on strengthening customer partnerships and driving performance through value-added innovation is our foundation for growth. We have completed about 70% of our contracts and for renewal this year with a high retention rate and pricing that reflects the current inflationary environment. We anticipate completing most of the outstanding discussions over the next 2 quarters. Overall, segment price mix improved and was down 1.7% in the first quarter. This was a 70 basis point improvement from the fourth quarter decline of 2.4%.

The Price/mix reflects equal parts price and mix, including the impact of carryforward targeted pricing we implemented in fiscal 2026 as well as ongoing mix shifts with growth in multinational chains, and private label offerings. This was partially offset by recent inflation-justified pricing actions we have taken. As our most strategic and important market, we are encouraged by the solid momentum and execution of our North America business. Shifting to International segment. As I mentioned earlier, our results for the quarter were in line with our guide, but they do not yet meet our expectations for long-term performance. As we have worked through the carry-in of prior year's potato costs, we expect segment adjusted EBITDA margin to improve from first quarter levels.

In EMEA, we are managing market challenges by acting on what is under our control. We are balancing our network utilization as demonstrated by stopping production at our Broekhuizenvorst facility and we have successfully transitioned our customers' fulfillment to other Lamb Weston locations, enabling further cost optimization. We are well positioned to raise Lamb Weston capacity utilization in the region to more than 90%. As reported in the media, the market has seen announcements from other manufacturers regarding capacity closures or delays in future capacity expansion. This includes one announcing a closure of a Belgium facility and delays in new capacity additions from others, including media reports of a cancellation of a previously announced large new facility in Germany.

Furthermore, in contrast to last year's robust crop yields, this year's European crop has been negatively impacted in both quality and yield due to extensive heat and dry conditions. Noncontracted spot prices for open market potatoes are up, and we anticipate tighter supply. Potatoes will be the limiter in the industry this year, and we expect not all open industry capacity will be used. Due to our extensive long-standing grower relationships and our disciplined potato contracting cycle, we are in a good supply position to meet expected customer demand in contrast to some other players who have historically placed more reliance on the spot market. Additionally, given our expectation of rising potato costs, earlier this month, we implemented a price increase in Europe.

Beyond EMEA, net sales and adjusted EBITDA grew in China driven by multinational chain demand and our ability to execute LTOs with key customers. Our focus on favorable mix, productivity improvements and better fixed factory absorption drove much higher adjusted EBITDA and margins for the quarter. Across the rest of Asia Pacific, we were off to a slower volume start and have engaged with our largest customers in joint planning for the balance of the year. Latin America continues to win business and ramp production at our newest plant in Mar del Plata, Argentina, expanding both volume and margin. We recently began shipping to a strategic global QSR, a new customer in the region for our local team. We are focused on building volume to optimal production levels and emphasizing our quality point of differentiation.

As we indicated previously, our work on the prioritization of markets and channels as part of Focus to Win will identify where we see our best opportunities across the geographic markets. The international landscape is complex, and we are entering a pivotal new phase of execution. To further identify opportunities to better align our organization with the needs of our Focus to Win strategy, as Jan referenced, we recently completed an organizational diagnostic to drive greater speed, simplicity, accountability and consistency in how we operate. As our business has evolved, our structure become more complex and no longer fully reflected how we needed to operate.

Through this work, we are simplifying our structure, reducing management layers and broadening spans of control and in certain cases, consolidating regions and leadership roles. These changes, including eliminating selected roles in open positions, better aligns our organization with our priorities, and we believe will position us for greater long-term success. Mark Schroeder, President of International, will be leading Lamb Weston at the end of the calendar year. We wish Mark the best in his future endeavors. We have begun an outside search to identify his successor to provide us with the operational experience, execution and urgency needed in this critical leadership role as we focus on how our international business can deliver the most shareholder value.

In addition, as we work on the prioritization of markets and channels, in the near term, we are taking action to simplify our international management structure by consolidating our China and Asia Pacific regions into one unified APAC region. Our goal is to build a simpler, faster and more agile organization that is better positioned to serve customers, support team members and deliver sustainable growth. It also allows us to reinvest in areas that strengthen our competitive position, including our commercial sales organization, innovation and capabilities that bring us closer to customers.

Also, as Jan spoke to, we began a new phase of our cost savings program, implementing new budgeting and procurement practices. We launched an enterprise-wide zero-based budgeting process that is analyzing spending across the organization. Through intensive reviews by cost package owners and procurement, we are identifying incremental savings to drive margin expansion and to selectively reinvest in revenue growth and innovation. This is a cultural transition to an owner's mindset, enabling the business to consistently find savings and fund growth initiatives. Our focus on costs is evident in our results. Adjusting for one-timers, our SG&A was flat to prior year. Inflation has continued to drive input costs higher. The teams are actively managing this impact through our cost savings program, which we began over a year ago.

We also will continue to make appropriate pricing actions as warranted. Our Focus to Win strategy is working. We have established clarity to our teams on their objectives tied to specific KPIs to measure and incentivize success, and we are making progress across our strategic pillars of prioritizing markets and channels, strengthening customer relationships, executing with excellence and setting the pace for innovation. We've already highlighted some of the progress from our focus on customers and executing with excellence. In addition, we are shaping our prioritization of markets and channels as we progress our strategy work. We have held multiple cross-functional global team meetings to share best practices for success across markets. We anticipate completing this work in the coming months, and we will share more at an Investor Day in early calendar 2027.

Finally, our product teams continue to deliver industry-leading innovation with new offerings to drive menu innovation and traffic for our customers as consumer tastes and preferences change. With existing customers, we are creating excitement in the category with limited time offerings for QSR customers around the world. One example is Black Pepper flavored stars in China. These collaborations drive uniqueness in restaurant menus and favorable mix for both operators and Lamb Weston. And we continue to find ways to expand our market. For the U.S. education market, we are launching reduced sodium tater puffs and star-shaped puffs that deliver crispy texture and stay hotter longer. Customer centricity is the North Star at Lamb Weston and informs everything that we do. We will continue to drive great product and service to ensure we maintain the category leadership position we have earned.

Let me now hand the call over to Jim.

James Gray

Thank you, Mike, and good morning, everyone. As Mike said, we are making good progress in the execution of Focus to Win, while managing a challenging business environment. For the quarter, net sales finished at $1.67, billion which is up 1% from prior year. Adjusted diluted earnings per share were $0.75, which is also up 1% from prior year.

Adjusted EBITDA was substantially better than our expectations at $286 million, down 5% from prior year due to the carry-in of the prior year's potato costs in EMEA. Company net sales increased 1%, led by a 2% increase in sales volume, which was partially offset by a 1.8% decline in price mix. FX impact was not meaningful. Our North America segment net sales increased 5%, driven by 7% sales volume growth. This was the seventh consecutive quarter of sales volume growth for North America. As Mike mentioned, prices declined 1.7% with price and mix equally contributing. The underlying market drivers for the quarter, as reported by Circana CREST were softer in Q1 and we outperformed versus these trends. U.S. restaurant topic was essentially flat, while QSR traffic declined by 1%.

QSR chicken traffic increased 4% and favorably impacting our sales mix. And in fact, within our chain business, we open index with chicken QSR customers. In our International segment, net sales declined 8% due to a sales volume decline of 6% and price/mix decline of 2%. Again, FX impact was not meaningful. During the quarter, we faced competitive pricing challenges in EMEA, which primarily reflects the market conditions. Internationally, QSR traffic declined 1% in the U.K., France, Italy and Germany, while Spain was essentially flat. Change in adjusted EBITDA was better than our guidance for the quarter, declining only 5%. North America was up 11% and international declined in line with our expectations.

In Q1, North America delivered gross profit margin expansion and 11% adjusted EBITDA growth. Sales volume growth led the way, combined with cost savings initiatives, $5 million in tariff refunds and improvement in earnings from our joint venture with RDO. Inflation has proven to be persistent. All key input costs were increasing in the quarter with substantial increases in freight costs, edible oils packaging and ingredients. For Q1 international performance, we were impacted by lower sales volume, mostly in Europe and higher carry-in of prior year's potato crop costs. As a result, segment adjusted EBITDA declined to $27 million.

Cash from operations generated $235 million in Q1, which is an increase from prior year's quarter. Last year benefited -- sorry, it was a decrease from prior year's quarter, just to correct that. Last year benefited from $136 million improvement in inventories as the company was beginning its cost savings program. Current quarter cash provided by operating activities benefited by $59 million from an increase in accounts payable due to the company's work with supplier partners to improve terms. Other changes in working capital items were attributed to normal course of business. Capital expenditures were $91 million in the quarter, in line with our expectations. Free cash flow generated in Q1 was $144 million in the quarter. In Q1, we returned $52 million to shareholders through our quarterly dividend. Net debt was $3.8 billion, and our net debt to adjusted EBITDA leverage ratio was 3.3x on a trailing 12-month basis.

As we move forward with Focus to Win, we anticipate that adjusted EBITDA will grow and contribute to an improved debt-to-EBITDA leverage ratio. This morning, we announced the next quarterly dividend of $0.38 per share payable on December 4. We are updating our guidance to reflect the positive first quarter results. We continue to believe our strong position with customers, improved operating efficiencies and the lapping of onetime items as well as current pricing actions to address rising input costs, support an expectation of earnings growth in fiscal '27. For fiscal '27, we are increasing our net sales outlook to low single-digit growth versus our prior expectation of flat to 1% growth. This growth versus fiscal 2026 adjusted for 52 weeks, which equates to a net sales base of $6.485 billion. In fiscal '27, our adjusted operating income target increases to a range of $730 million to $810 million. Our updated guidance for interest expense is in the range of $185 million to $190 million and tax rate is in the range of 25% to 27%.

We now anticipate an adjusted EPS range of $3.05 to $3.35 versus the 52-week adjusted EPS number of $2.90 in fiscal '26. We are raising our adjusted EBITDA range to $1.125 billion to $1.215 billion. This is versus a comparable $1.18 billion in the 52-week period for fiscal '26. Furthermore, we continue to expect cash used for capital expenditures of approximately $380 million to $410 million, which includes carrying amounts for projects started last fiscal year. On an accrual basis, we anticipate investments in the range of $330 million to $350 million. We continue to focus on capital efficiency through the better pacing of investments, process improvements to debottleneck capacity and disciplined decision-making based upon return on investment.

We are generating strong cash flow, and our expectation for cash provided by operations is $750 million to $800 million. We expect to hold the investment in working capital relatively flat year-over-year despite an anticipated increase in net sales. For Lamb Weston's second quarter results, we expect net sales to be up low single digits, and we anticipate adjusted EBITDA to be up high single digits to low double digits. Overall, North America crop conditions remain generally in line with expectations. While regional variability exists, current production estimates support our outlook.

In Europe, there was a prolonged heat and dry conditions throughout much of summer. These conditions are expected to negatively impact the harvest, resulting in a smaller size crop with tonnage tracking well below historical averages. To continue to meet demand, we are working with our customers to modify product specifications. We anticipate the tighter supply will result in higher raw material costs, which we are mitigating through pricing actions.

That concludes my remarks. Let me hand it back to Mike.

Mike Smith

Thank you, Jim. In closing, it has been a dynamic start to the fiscal year. We delivered a good first quarter and have momentum in our North America business, our most strategic and important market. We are taking decisive action to drive improved performance internationally through actions in EMEA and a focus on improving volume and profit in our opportunity regions.

We've executed against organizational design and cost savings to improve our agility and cost of doing business. And we are addressing rising input costs through our proactive cost savings program and appropriate pricing. We continue to have a lot of work in front of us, but there is a lot of opportunity, and I am proud of all we have accomplished and the plans we have for driving long-term shareholder value.

Given our Q1 results, the progress we have made with customers and the steps we are taking to address rising input costs, we are increasing our fiscal 2027 full year outlook. We'll now take your questions.

Operator

[Operator Instructions] We will take our first question from Peter Galbo with Bank of America.

質疑応答

Peter Galbo

I just wanted to ask in terms of the North America performance. I think obviously, the volumes continue to come in better maybe than your own expectations and better than the street expectations. And so I just want to get a sense for kind of what drives the sustainability of that performance going forward? I think that's come to light even more so recently given some commentary from your largest customer about their outlook for traffic. So would love to just kind of dig under the hood a bit more there on how we should think about the volume performance in North America going forward.

Mike Smith

Peter, thanks for the question. This is Mike. When I think about our North America business, I'm really happy with our performance.

When you look at Q1, like I shared in the prepared remarks, we grew North America sales volume, net sales, gross margin segment adjusted EBITDA and so really happy with where things are going. And we did that off of favorable existing customer mix. Jim talked about how we over-index with some of those QSRs that have stronger traffic in the marketplace. We're also seeing the benefits of all the hard work the team has put in around focused win like the strong customer partnerships and we've supported that with more consistent fill rates. I think you're seeing more frequency of engagement from our team and more joint business planning with our customers. And I'll tell you that's leading to new customer wins and new innovation opportunities.

And when I think about -- as we're looking across our customers, we're winning with the winners. We've done some customer segmentation that really helps us identify the customers that have that higher probability of growth and expansion. And then as you look down through the P&L, our cost-saving efforts are seeing a lot of fruits. I think we're -- the initiatives we have underway are permanently lowering our operating costs. We're adding some additional initiatives to that with the ZBB work that we talked about as well as the org design work that we just announced today, where we're looking to drive simplicity and making better decisions across our business. At the end of the day, we have a maniacal focus on improving our manufacturing efficiency. And I think all those things together, Peter, are really helping us stabilize and move to growth within our North America business.

Peter Galbo

Great. Jim, maybe as a follow-up, I've got a few questions this morning just on kind of raising the EBITDA guide roughly by the amount of the beat relative to your expectations in the quarter. Obviously, inflation has moved up. But I don't think we got an updated inflation number for the year. I think you had previously been thinking about 3% on inflation. So maybe you can just provide us with an update as to where your expectations around that stand for the rest of this year.

James Gray

Yes. Thanks, Peter. I think when we looked at just overall kind of non-potato input costs, we're about 100 basis points higher on our inflation expectation for the year. So some of those significant categories that have been impacted freight, primarily in the U.S., edible oils, packaging, and then some ingredients costs really kind of across the globe.

Always, our first step to address inflation is to lean on our cost culture and cost savings initiatives. And Jan mentioned his remarks that the team came together both across North America as well as Europe. And we did this Champions Day to really press and think about other cost savings initiatives that can impact us this year as well as into next year. And so as we think about those value-creating initiatives that we have currently underway that are really kind of doing a lot to offset the inflation that we're experiencing. And then where we can offset that, we rely on pricing to offset any remaining inflation if the market will accept that.

Mike Smith

Yes. The other thing, Peter, maybe I'll just build on is just that customers are acknowledging the reality of inflation. I mean everyone is feeling it. And when you look at our Spring '26 pricing action, we're seeing good realization. We shared that we're able to have some formula-based clauses in several of our large QSR agreements, and that allows for some pass-through. And then as I said in the prepared remarks, we've implemented an increase in Europe. And that seems to be pretty understood by our customers. So I think the combination of these actions is giving us confidence in our EBITDA guidance we issued today.

Operator

We will take our next question from Tom Palmer with JPMorgan.

Thomas Palmer

Mike, you gave some helpful detail on how negotiations have been progressing in North America. Maybe just in the context of this, could we clarify your pricing expectations for the year in the region? I think you've had list price increases on kind of the old retail and foodservice segment customers. And then it sounded from the prepared remarks like contracted pricing would be higher as well. Guidance previously was -- I think it was a low single-digit price/mix decline. So kind of how does this shake out in North America now?

Mike Smith

Yes, Tom. So first of all, as I said in the prepared remarks, we're about 70% complete. No real surprises kind of negotiations have been going as expected. And we'll continue to ramp those up over the next couple of quarters. As I just mentioned on -- to Peter's question, I think customers are seeing the inflation. I think everyone is feeling it. And we did take that increase in Spring of '26 across our noncontracted customers. And so we've gotten into these -- the contracting season with those larger multinational chains that are in multiyear agreements, we do have some formula-based clauses and several of those and we're able to get that pricing through.

And so as you saw in our price/mix, we have made some sequential improvements quarter-over-quarter. And we believe that we'll continue to have some improvement in price mix throughout the remainder of the year. I think the important piece to remember, about half of that is price, half of that's mix. And we do see some shifts in mix as we have a higher portion of our -- sorry, we see some growth in multinational chains and also a shift to private label and retail.

James Gray

And maybe just to add, I mean, I think as you think about the balance of the year, we've had some notable new customer wins almost a year ago and so the lap of those will slow. We'll still expect sales volume growth. I think it will just moderate as we get through the balance of the year. And then as Mike mentioned, we're working pretty hard on reducing the impact of price mix, and we see that becoming less and less of a headwind and possibly a contributor.

So for North America right now, I think for the full year, we anticipate really kind of modest top line growth and the EBITDA growth, I think, is driven really by the pricing momentum as well as the significant cost savings, which are going to offset that persistent input cost inflation that we're addressing this year.

Thomas Palmer

Okay. And maybe switching subjects to the environment in Europe. I think the implication or the potential is that you have a less price competitive environment just given the evolving cost and how some of your competitors might be disproportionately affected.

Maybe 2 clarifications here. One, are you starting to see behavior changes by your competitors? And to the extent that you do see changes, would that be embedded in your outlook or incremental?

Mike Smith

Yes. Maybe just let me speak to what's going on in Europe right now. I think it's a tale of 2 years. If I think about last year, just to ground you, I mean, we had row crop. We had high yields. We had more acres that were planted, and that led to a lot of raw. We also saw a lot of excess capacity, especially as there were less exports from Europe going out worldwide around the globe. And then there was continued consumer demand softness and restaurant traffic softness.

I think this year is very different. And when you look at the poor quality and the poor yields are raw, that's likely going to be the limiter to being able to use all the capacity in that region. And I think as a result, you're seeing in the media that there's been closures of current and announced capacity. As I think about our business with the closure of Broekhuizenvorst, we believe that -- as I've said in the prepared remarks, we'll improve our utilization by about 10 points and be running in the low 90s once that's complete. And then the other great thing is we're consolidating into our most cost efficient plants. And I have a lot of confidence that the teams are going to execute, and we're going to be able to serve our customers even better than we have.

And I think when I look at the closure of Broekhuizenvorst, I look at the Belgium closure and also the German facility that's not going to move forward. The 3 of those represent over [ 1 billion pounds ] of capacity in that region.

James Gray

And Tom, let me just comment, too. So the net of that, I think for international, so we're probably seeing for the full year, net sales closer to flat as we've taken pricing action that's really helping us address both the rising potato costs as well as some of the other non-potato key input cost inflation that we're seeing.

Operator

We will take our next question from Alexia Howard with Bernstein.

Alexia Howard

Thank you very much for the question here. You talked earlier about winning with customers that are growing more rapidly in Europe -- sorry, in North America. Can you talk about how you identify those customers that are likely to do better in this current environment? Because obviously, the situation is rather unusual with the weakness in the consumer? And then I have a follow-up.

Mike Smith

Yes, Alexia, I appreciate the question. I mean we do a lot of analytics to identify the customers that we believe have the right to win long term around the globe and our are delivering on consumer trends. And we spend a lot of time looking at that. We also look at customers that have grown over the past several years and try and triangulate to who we believe the winners will be in the future.

I think when it comes down to kind of the brass tax, it has a lot to do with our Focus to Win initiative around building those customer relationships. We're spending a lot more time interacting with our customers on a day in and day out basis. We've improved our joint business planning process. We've improved our fill rates and supply to our customers. And I think those things are helping us win in the marketplace, and allowing us to really win with those customers that are winning and driving traffic.

Alexia Howard

Great. That's very, very helpful. And actually sticking with the same theme. I mean, gosh, the strong volume growth that you saw in North America this quarter is very unusual in packaged food at the moment. Is there a risk of adverse competitor reactions or is it -- or are you not seeing that? Is it your innovation and the way that you're working with customers that defends against that?

Mike Smith

Yes. I think you hit it on the head. I mean it has a lot to do with what we're just talking about, the joint business planning, the connection to the customers, the innovation that creates stickiness and differentiates us in the marketplace is that quality and consistency that Lamb Weston is known for and that we've touted over the years and been able to deliver on. And those are things at the end of the day that our customers expect and Lamb Weston is delivering. And so we're getting the nod and we're bringing on new customers, but equally important, we are growing with our existing customers through LTOs around the globe and through other innovation projects and through battered and more Crispy Fries. So we're really excited about the performance that we're having with our customers.

James Gray

I mean I'd add, when we look at our customer mix, and I mentioned that we do over-index with QSR chicken in North America. And honestly, QSR or just chicken as a concept, whether it's within a chain that's focused on QSR or within a burger chain has definitely been appealing in many of our global markets. And then also what Mike mentioned, and I think that we may kind of undervalue as financial analysts and when we look at the company as LTOs and the ability to really work with a specific chain to further deepen that relationship and bring a limited time offer concept. It's going to be both helpful for them in terms of driving traffic. And it's also a help for us in terms of both volume and margin.

Operator

We will take our next question from Max Gumport with BNP Paribas.

Max Andrew Gumport

It's a 2-part question on international. One is you made comments about how you're doing work and where you may play in international and how that could lead to partnership and divestiture opportunities. Just to have an update on what you're considering there? You also noted that you remain below your long-term aspirations for international, specifically with regard to margins and profit? If you could put a bit more color on what you see as the right long-term opportunity for international EBITDA. That would be very helpful.

James Gray

Sure. Thank you, Max, for your questions. So last time, I mentioned that we were in the strategic process of where to play, how to win, which in the end will lead to a growth algorithm going forward. So at this stage, we have completed the where to play work, and we're in the middle of the how to win, which is actually quite exciting because that work leads us to a set of country clusters.

Remember, we talked last time, we worked with a lot of data sets on net landed costs, which countries cluster well together where do we expect the growth to come from in the different parts of the world and how are we positioned to capture that growth. And in the end, that work leads to country clusters where we can give an owner of a country cluster a clear mission. And also clarity as to how they contribute to the Lamb Weston growth algorithm. The how to win work is quite exciting because really there we get the teams together and we dive into the how to win and the different kind of toolkits and playbooks that we have to improve sales execution and that we can roll out across the different countries that share a similar mission. So that really serves our strategic purpose quite well. And again, this work could also lead in the future to partnerships and divestiture opportunities depending on which rules these different clusters play in our growth algorithm.

So to go more in detail, it's a little bit too early today in terms of gross algorithms. We really look forward to share in more details with you during our Investor Day in early 2027. So we look forward to that.

Max Andrew Gumport

And as a follow-up, there was mention of ZBB. It's been almost a decade since we've heard much about CBD in the CPG industry. And I think the learning from that prior experiment was it's -- you can have some short-term margin expansion that can be a bit dangerous in terms of cutting too much and what that could do to organic sales growth? What sort of guardrails do you have this time around to make sure that you don't cut too deep and that you can keep your organic sales momentum going?

Mike Smith

Yes. I think, Max, I mean, we're very thoughtful about that. I think as you think about the work we've done with focus to win over the last 1.5 years, we've put a strong focus around driving out costs, and we're well ahead of our cost savings plan and what we're doing there.

When I think about the ZBB work, it's more about creating that culture and that owner mindset within our organization. And I think a lot of times when we talk about ZBB, we go straight to cost. This is as much about where can we have that owner mindset and find opportunities to drive out costs. But it's also about where we can reinvest some of those savings back into where we have a right to win long term, things like innovation, things like our commercial teams and just things that are going to help us connect better with our customers out in the marketplace.

Operator

We will take our next question from Robert Moskow with TD Cowen.

Robert Moskow

Most of the questions have been asked. So maybe just to Jim. I noticed that the free cash flow guidance is unchanged even though everything else is up a little bit. Any real reason for that? Is it because of raw material costs going higher?

Mike Smith

Yes. Just a little bit of raw material also then rolling into our finished goods. And so just thinking about how that's going to play out necessarily on inventory and change in inventory value.

Operator

We will take our next question from Pooran Sharma with Stephens.

Pooran Sharma

Congrats on posting strong results here. My first question, I wanted to understand how European procurement is faring given just the tighter environment. I think you typically get about 70% to 80% of your supplies under contract, but I believe your contracts are based off acreage. And just wanted to get a sense of how much more procurement do you see on the open market this year than you typically have in the past?

Mike Smith

Yes, Ryan. I appreciate the question. I think as I think about really around the European crop, as we -- I think Jim talked about in the prepared remarks, there's been several heat waves, I mean, been well documented in the news over the course of the summer. And that impacted yields and quality. And we believe that reduced tonnage in the region about 15% to 20%. I think as we think about processes that we've put in place around better forecasting and tools that we have, we anticipate that we have sufficient supply of contracted price potatoes on our business.

We have a smaller portion remaining of opens lower than we have typically in the past. I think given the inflation in potatoes and some of those other key input costs, that's the reason we took our pricing increase in Europe. I think as I look about -- as I think about Europe overall, we're working really close with our customers to also adjust the specs. And that's normal in Europe. There's more variability in raw there. And so adjusting those specs is something that we'll typically do to help stretch the raw to get through the season. But like I said before, [indiscernible] is going to -- we believe [ raw ] is going to be the limiter to capacity in that regional market.

James Gray

And Mike, maybe if I add, just as we looked at the pricing increase. We're really thinking about that small portion that's open at that cost is in our forecast for the balance of the year. And so then also balancing against inflation in some of the other than potato crop costs. And so we'll have net sales up, we'll have COGS. And so that's kind of leading us to a little bit more of a kind of a balanced view for international versus the full year guide that we had.

Pooran Sharma

Great. Appreciate the color. I guess on my follow-up, I wanted to understand some of the comments you said earlier, you were -- as you simplify international and consolidate APAC leadership, how much of the opportunity there would you say is a cost versus improved execution?

Mike Smith

Yes. So I think the important piece is this was around improving our execution. There were benefits of cost savings that come along with it, but the focus was around improving our agility and cost of doing business. Because of our implementation time lines vary around the globe and some of those local requirements, we're not going to disclose a specific number or dollar figure right now. but they're really focusing on simplifying the organization and reducing those management layers just so we can have quicker communication, be more agile and be able to address customer needs moving forward.

Operator

We will take our next question from Marc Torrente with Wells Fargo.

Marc Torrente

Just first, in EMEA, you've taken some actions in addressing capacity as have competitors you believe you can get capacity back into the 90% range for utilization. Maybe any more color on what is needed to return to those levels? Is it more out recent actions starting to rebalance across the market as demand stays steady? Or are there any further actions to take? And I guess what's the time line to reach those targets?

Mike Smith

Yes. I think a couple of things come to mind. I mean we've talked about the changes in the potato raw and the closures and so forth. I think the other thing, it just goes back to that focus to win strategy that we have in place. I mean we have really focused on building those customer partnerships in the marketplace. I know we talked a lot about that with North America on the call already. But that translates across the globe. We continue to have that focus on cost savings. And we've done a lot of work in our international plants in order to be more efficient, whether that's pinch point analyses or throughput work to make sure that we improve in those areas.

And then innovation is another important area. I mean, as you look around the globe, especially in some of these markets that start to see higher index of of delivery and carryout fries, that crispiness, that better technology, that becomes an important piece of delivering on consumers needs and we're doing that through innovation. And so we're excited about the work that we're doing there. And again, we can control the controllables, and those are a few of the things that we're doing to control that moving forward.

Marc Torrente

Okay. I appreciate that. And then just any more color on end market trends that you're seeing. Have you seen any recent improvement in restaurant traffic trends across U.S. or European markets? And what's factored in your outlook for the year in terms of just general market conditions?

Mike Smith

Yes. I'll touch on this and maybe hand it over to Jim. I think we talked a little bit about traffic already, but when I think about the growth in the category, I think fries continue to be the most ordered item on restaurant menus. It's one of the most profitable items for our operators. And so they continue to buy those. It's an important piece of their overall menu mix. And when we look at the fries attachment rate, it remains elevated since prepandemic levels. And so when people are going out to restaurants to eat, they're ordering fries.

James Gray

And maybe just to add in our remarks, we talked about Europe demand and maybe tying it back to the last question, too. So in a number of the countries, QSR traffic was down 1%, Spain was flat. And so we just watch what the consumer is doing with regard to eating away from home and kind of what that quarter-over-quarter, year-over-year traffic looks like. And I think just demand in Europe is also something that can really help to tighten utilizations up over time.

Operator

And this will conclude today's question-and-answer session. I will turn the conference back to Ms. Hancock for any additional or closing remarks.

Debbie Hancock

Thank you, Cynthia, and thank you, everyone, for joining us today. Our team will be at these upcoming events, and we hope to see you there. The replay of the call will be available on our website later this afternoon. Have a good rest of your day.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.