蓝威斯顿 (LW) 2027财年第一季度业绩电话会：得益于北美业务增长上调业绩指引

核心要点

• 蓝威斯顿（NYSE: LW）公布2027财年第一季度净销售额为16.7亿美元，同比增长1%。销量增长2%，但被价格/产品组合下降1.8%部分抵消。
• 调整后稀释每股收益增长1%至0.75美元。调整后EBITDA下降5%至2.86亿美元，主要是由于上一季欧洲马铃薯作物的结转成本所致，但最终高于公司预期。
• 北美地区净销售额增长5%，销量增长7%，标志着该板块连续第七个季度实现销量增长。北美地区调整后EBITDA增长11%。
• 国际业务净销售额下降8%，反映出销量下降6%以及价格/产品组合下降2%。受欧洲销量下滑及马铃薯成本上升影响，该板块调整后EBITDA降至2700万美元。
• 管理层上调了2027财年业绩预期，预计净销售额实现低个位数增长，调整后每股收益为3.05-3.35美元，调整后EBITDA为11.25亿-12.15亿美元。
• 在高温和干旱天气导致作物质量和产量下降后，欧洲马铃薯供应预计将趋紧。管理层估计该地区马铃薯产量下降了约15%-20%，并已在欧洲实施提价。

主要财务数据

业务与运营业绩

北美地区推动了本季度的增长。蓝威斯顿受益于赢得新客户、现有客户业务拓展以及在炸鸡为主的快餐连锁店（QSR）中的更高业务敞口。美国餐厅客流量基本持平，其中快餐店客流量下降1%，而炸鸡类快餐店客流量增长4%。

北美地区价格/产品组合下降1.7%，较2026财年第四季度的2.4%降幅有所改善。管理层将剩余的压力平分归因于定价和产品组合，包括跨国连锁店和自有品牌产品的增长。该公司已完成今年约70%的合同续签，客户留存率高，且定价旨在反映通胀。

国际业务表现仍低于管理层的长期目标。在欧洲、中东和非洲地区（EMEA），蓝威斯顿停止了其布鲁克海岑福斯特（Broekhuizenvorst）工厂的生产，并将客户履约转移至其他地点。管理层预计该调整将使当地产能利用率提升约10个百分点，达到90%出头的水平。

在跨国快餐店需求、限时优惠活动、生产率提升以及工厂吸收率改善的推动下，中国市场实现了更高的净销售额和调整后EBITDA。拉美地区继续增加业务，并提升了阿根廷马德普拉塔工厂的产量。亚太地区其他市场的开局则较为缓慢。

公司正在通过将中国和亚太地区合并为一个亚太（APAC）大区来简化其国际结构。公司还在减少管理层级并扩大管理跨度，以提高决策和执行效率。

蓝威斯顿已在全公司范围内启动零基预算编制流程。管理层表示，节省的资金既可用于提高利润率，也可重新投资于商业能力、创新和面向客户的资源。

管理层业绩指引

净销售额预期是以调整后的2026财年52周基准64.85亿美元为衡量标准。尽管预期销售额增长，管理层预计营运资金投资同比将保持相对持平。

对于2027财年第二季度，公司预计净销售额将实现低个位数百分比的增长，调整后EBITDA将实现高个位数至低两位数百分比的增长。

管理层预计北美地区的销量增长将持续，但随着上年新增客户基数的重叠，增速将有所放缓。价格/产品组合预计将不再是主要的拖累因素，甚至可能成为积极贡献因素。

风险与关注领域

• 非马铃薯投入成本通胀目前预计比管理层先前的全年假设高出约100个基点，压力来自货运、食用油、包装和原辅料。
• 欧洲的高温和干旱天气降低了马铃薯作物的质量和产量。原材料成本上升和供应趋紧可能会制约行业产能利用率。
• 英国、法国、意大利和德国的国际快餐店客流量整体下降1%，而西班牙基本持平。
• 受欧洲销量下滑、竞争性定价以及上年马铃薯成本的影响，国际销售额和利润率继续承压。
• 管理层预计，随着近期获得的新客户效应逐渐重叠，北美地区的销量增长将放缓。
• 更高的原材料成本可能会推高库存价值，这也是现金流指引未能随盈利指引一同上调的原因之一。

分析师问答要点

北美销量可持续性：管理层将该板块的业绩表现归因于在增长更快的炸鸡类快餐店中的敞口、订单履约率改善、联合业务规划、创新以及新客户的开拓。公司正通过客户细分，优先对接增长前景更强的连锁品牌。

定价与通胀：管理层表示，几家大型快餐店合同中的公式化条款使得部分通胀能够传导给客户。公司还对未签订合同的北美客户及欧洲市场采取了提价行动。

欧洲产能与供应：蓝威斯顿预计，今年欧洲的主要制约因素是马铃薯原料而非加工产能。管理层表示，其合同供应量应足以满足预期的客户需求，留在现货市场采购的比例低于往年。

国际业务组合研判：公司已完成战略复盘中“确定竞争赛道”阶段的工作，目前正制定针对各国家集群的执行计划。管理层表示，这一过程最终可能会带来合作或剥离资产，更多细节计划在2027日历年早期的投资者日上公布。

零基预算：管理层将零基预算（ZBB）描述为一种建立主人翁意识文化而不仅仅是削减开支的工具。公司计划有选择性地在创新、商业团队和客户互动方面进行再投资。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

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.

分析师问答

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.