Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations, which we refer to as “MD&A,” should be read in conjunction with our condensed consolidated financial statements and related notes included in "Financial Information" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and in “Financial Statements and Supplementary Data” of the Company's Annual Report on Form 10-K for the fiscal year ended May 29, 2022 (the “Form 10-K”), which we filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on July 27, 2022.
Forward-Looking Statements
This report, including the MD&A, contains forward-looking statements within the meaning of the federal securities laws. Words such as “will,” “continue,” “may,” “expect,” “would,” “believe,” “increase,” “implement,” “mitigate,” “manage,” “grow,” “improve,” “outlook,” and variations of such words and similar expressions are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements regarding our plans, execution, capital investments, operational costs, pricing actions, cash flows, liquidity, dividends, enterprise resource planning (“ERP”) system implementation and business and financial outlook and prospects, as well as supply chain constraints, inflation, our industry, and the global economy. These forward-looking statements are based on management’s current expectations and are subject to uncertainties and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report. These risks and uncertainties include, among other things: the availability and prices of raw materials; labor shortages and other operational challenges; disruptions in the global economy caused by the war in Ukraine and the possible related heightening of our other known risks; impacts on our business due to health pandemics or other contagious outbreaks, such as the COVID-19 pandemic, including impacts on demand for our products, increased costs, disruption of supply, other constraints in the availability of key commodities and other necessary services or restrictions imposed by public health authorities or governments; levels of pension, labor and people-related expenses; our ability to successfully execute our long-term value creation strategies; our ability to execute on large capital projects, including construction of new production lines or facilities; the competitive environment and related conditions in the markets in which we and our joint ventures operate; political and economic conditions of the countries in which we and our joint ventures conduct business and other factors related to our international operations; disruption of our access to export mechanisms; risks associated with possible acquisitions, including our ability to complete acquisitions or integrate acquired businesses; our debt levels; changes in our relationships with our growers or significant customers; the success of our joint ventures; actions of governments and regulatory factors affecting our businesses or joint ventures; the ultimate outcome of litigation or any product recalls; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; and other risks described in our reports filed from time to time with the SEC. We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no responsibility for updating these statements, except as required by law.
Overview
Lamb Weston Holdings, Inc. (“we,” “us,” “our,” “the Company,” or “Lamb Weston”), along with our joint ventures, is a leading global producer, distributor, and marketer of value-added frozen potato products. We, along with our joint ventures, are the number one supplier of value-added frozen potato products in North America and a leading supplier of value-added frozen potato products internationally, with a strong and growing presence in high-growth emerging markets. We, along with our joint ventures, offer a broad product portfolio to a diverse channel and customer base in over 100 countries. French fries represent the majority of our value-added frozen potato product portfolio.
This MD&A is provided as a supplement to the consolidated financial statements and related condensed notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. Our MD&A is based on financial data derived from the financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and certain other financial data (including product contribution margin, on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Net Income, and Adjusted Diluted EPS) that is prepared using non-GAAP financial measures.
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Refer to “Non-GAAP Financial Measures” below for the definitions of product contribution margin, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Net Income, and Adjusted Diluted EPS, and a reconciliation of these non-GAAP financial measures to gross profit, net income, or diluted earnings per share, as applicable.
Executive Summary
The following highlights our financial results in the first quarter of fiscal 2023, compared with the prior year quarter. For more information, refer to the “Results of Operations” section below.
● Net sales increased 14% to $1,125.6 million
● Income from operations increased 161% to $157.0 million
● Net income increased 678% to $231.9 million, and diluted earnings per share increased 700% to $1.60, including items impacting comparability of $161.4 million ($123.7 million after-tax, or $0.85 per share)
● Adjusted Net Income increased 315% to $108.2 million, and Adjusted Diluted EPS increased 317% to $0.75
● Adjusted EBITDA including unconsolidated joint ventures increased 92% to $227.8 million
● We returned $63.7 million of cash to stockholders, including $35.3 million in dividends and $28.4 million of share repurchases
We drove strong sales, earnings growth, and gross margin expansion in the quarter by executing pricing actions across each of our business segments and generating productivity savings to counter significant input, manufacturing, and supply chain cost inflation. The increase in net sales was partially offset by a decline in sales volume, primarily reflecting softer restaurant traffic and demand trends in the U.S., especially at casual dining and full-service restaurants, as consumers adjusted to the severe inflationary environment. Overall traffic at large quick service restaurants (“QSR”) in the U.S. remained solid. Our sales volume also reflects our inability to fully serve customer demand in our foodservice and retail channels due to widespread industry supply chain constraints, including labor and commodities shortages, that affected production run-rates and throughput in our factories.
The increase in our net income was driven by higher income from operations as well as sharply higher equity method investment earnings, which include our share of earnings from our unconsolidated joint ventures. In the first quarter of fiscal 2023, the increase in equity method investment earnings included a $146.3 million unrealized gain ($108.6 million after-tax, or $0.75 per share) on derivatives for natural gas and electricity contracts in Europe, reflecting the volatility of those energy markets in that region. Equity method investment earnings also included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with our acquisition of an additional 40% interest in Lamb Weston Alimentos Modernos S.A. (“LWAMSA”). The gain related to the remeasuring of our previously held 50% ownership interest to fair value. The net sales, income from operations, and total assets acquired were not material to our consolidated net sales, income from operations, and total assets. We have identified both of these gains as items impacting comparability and have excluded their impact when providing Adjusted Net Income, Adjusted Diluted EPS, and Adjusted EBITDA including unconsolidated joint ventures.
In September 2022, Lamb-Weston/Meijer v.o.f. ("LWM"), our joint venture in Europe, completed the previously announced withdrawal from its joint venture in Russia.
Outlook
In the remainder of fiscal 2023, we expect price/mix to increase versus the prior year largely due to carryover benefits of pricing actions taken in the prior year as well as earlier in fiscal 2023 to counter manufacturing and distribution cost inflation. We expect demand and sales volumes growth will continue to be volatile as consumers respond to the current inflationary environment, and that our volume will be affected by production capacity and logistics constraints due to disruptions in the global supply chain network. We expect the rate of recovery of demand in our key international markets will be mixed, and that our international shipments will continue to be tempered by limited shipping container availability and disruptions to ocean freight networks, as well as efforts to divert the production volumes to higher-margin sales channels in the U.S.
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During the first half of fiscal 2023, we expect our gross margins will be pressured as compared to normalized seasonal rates as we continue to manage through significant inflation as well as higher raw potato costs on a per pound basis due to the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in the fall of 2021. We also expect our gross margins in the first half of fiscal 2023 will be pressured by ongoing industrywide operational challenges, including labor and commodities shortages, resulting from volatility in the broader supply chain.
During the second half of fiscal 2023, we expect our gross margins to approach normalized annual levels based on our continued successful implementation of our pricing actions to offset input and transportation costs inflation, as well as our preliminary assessment that the overall quality of the 2022 potato crop will be in line with historical averages, although significant heat waves late in the season affected yields in our growing regions in the Pacific Northwest. We expect LWM’s earnings will be affected by a below-average potato crop in Europe resulting from high temperatures and drought conditions, as well as likely production disruptions resulting from energy constraints.
While the near-term global demand trends may be volatile as consumers navigate this inflationary environment, our recent announcement to expand capacity in Argentina, along with our ongoing investments in Idaho and China, demonstrate our confidence in the long-term health and growth outlook of the frozen potato category.
Results of Operations
We have four reportable segments: Global, Foodservice, Retail, and Other. We report net sales and product contribution margin by segment and on a consolidated basis. Product contribution margin, when presented on a consolidated basis, is a non-GAAP financial measure. Net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and A&P expenses. Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of the Company’s segments. For additional information on our reportable segments and product contribution margin, see “Non-GAAP Financial Measures” below and Note 13, Segments, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report.
Thirteen Weeks Ended August 28, 2022 compared to Thirteen Weeks Ended August 29, 2021
Net Sales, Gross Profit, and Product Contribution Margin
Thirteen Weeks Ended
August 28,
August 29,
%
(dollars in millions)
2022
2021
Inc/(Dec)
Segment net sales
Global
$
559.7
$
501.2
12%
Foodservice
366.3
321.4
14%
Retail
169.6
132.5
28%
Other
30.0
29.1
3%
$
1,125.6
$
984.2
14%
Segment product contribution margin
Global
$
83.7
$
42.6
96%
Foodservice
138.2
96.4
43%
Retail
48.7
14.8
229%
Other
(1.8)
(6.6)
(73%)
268.8
147.2
83%
Add: Advertising and promotion expenses
4.5
4.1
10%
Gross profit
$
273.3
$
151.3
81%
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Net Sales
Compared to the prior year quarter, Lamb Weston’s net sales for the first quarter of fiscal 2023 increased $141.4 million, or 14%, to $1,125.6 million. Price/mix increased 19%, reflecting the benefit of pricing actions across each of our core business segments to offset input, manufacturing, and transportation cost inflation. Volume declined 5%, primarily reflecting softer casual dining and full-service restaurant traffic in the U.S. as well as the timing of shipments to large chain restaurant customers. Shipments into foodservice and retail channels in the U.S. continued to be affected by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that impacted production run-rates and throughput in our production facilities.
Global segment net sales increased $58.5 million, or 12%, to $559.7 million. Price/mix increased 14% while volume decreased 2%. The benefit of domestic and international product and freight pricing actions to offset inflation, as well as favorable mix, drove the increase in price/mix. The timing of shipments to large QSR chain customers in the U.S., including the effect of lapping a notable limited time product offering in the prior year quarter, largely drove the decline in volume. Export shipments declined modestly, primarily due to production volumes being diverted to higher-margin sales channels in the U.S.
Foodservice segment net sales increased $44.9 million, or 14%, to $366.3 million. Price/mix increased 26% and volume decreased 12%. The carryover benefits of product and freight pricing actions taken in the prior year as well as early in fiscal 2023 to offset inflation drove the increase in price/mix. Demand in the segment’s restaurant and non-commercial channels (such as lodging and hospitality, healthcare, schools and universities, sports and entertainment, and workplace environments) softened along with restaurant traffic as consumers adjusted to the severe inflationary environment. The slowdown in restaurant traffic and consumer demand was more pronounced in casual dining and other full-service restaurants than in QSRs. Shipments were also affected by an inability to fully serve customer demand due to widespread industry supply chain constraints, including labor and commodities shortages, that impacted production run-rates and throughput in our production facilities, as well as incremental losses of certain low-margin non-commercial business.
Retail segment net sales increased $37.1 million, or 28%, to $169.6 million. Price/mix increased 32% while volume decreased 4%. The carryover benefits of pricing actions across the branded and private label portfolios taken in the prior year as well as earlier in fiscal 2023 to offset inflation drove the increase in price/mix. Lower shipments of private label products, resulting from incremental losses of certain low-margin business, drove the sales volume decline. Shipments of branded products increased, although growth was tempered by an inability to fully serve customer demand due to constrained production run-rates and throughput in our production facilities.
Net sales in our Other segment increased $0.9 million, or 3%, to $30.0 million. Price/mix increased 11% while volume decreased 8%. The increase in price/mix was driven by higher prices in our vegetable business, while the decrease in volume reflected the negative effect of the extreme summer heat on the yield and quality of the vegetable crops.
Gross Profit and Product Contribution Margin
Gross profit increased $122.0 million, or 81%, to $273.3 million, as the benefits from higher price/mix and productivity initiatives more than offset the impact of higher manufacturing and distribution costs on a per-pound basis, as well as lower sales volumes. The higher costs per pound primarily reflected double-digit cost inflation from key inputs, including: edible oils, ingredients such as grains and starches used in product coatings, labor costs, and transportation costs. The increase in costs per pound also reflected higher costs associated with the impact of extreme summer heat that negatively affected the yield and quality of potato crops in the Pacific Northwest in fall 2021, as well as the effects of labor and commodities shortages on production run-rates. The increase in gross profit also included a $2.8 million increase in unrealized mark-to-market adjustments associated with commodity hedging contracts, which includes a $4.0 million loss in the first quarter, compared with a $6.8 million loss related to these items in the prior year quarter.
Lamb Weston’s overall product contribution margin, defined as gross profit less A&P expenses, increased $121.6 million, or 83%, to $268.8 million. The increase was largely due to higher gross profit (as described above).
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Global segment product contribution margin increased $41.1 million, or 96%, to $83.7 million. Favorable price/mix, primarily reflecting the benefit of pricing actions, drove the increase, more than offsetting higher manufacturing and distribution costs per pound. Global segment cost of sales was $475.1 million, up 4% compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.
Foodservice segment product contribution margin increased $41.8 million, or 43%, to $138.2 million. Favorable price drove the increase, and was partially offset by higher manufacturing and distribution costs per pound, and the impact of lower sales volumes. Foodservice segment cost of sales was $226.9 million, up 1% compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.
Retail segment product contribution margin increased $33.9 million, or 229%, to $48.7 million. The benefits of pricing actions and favorable mix drove the increase, partially offset by higher manufacturing and distribution costs per pound. Retail segment cost of sales was $118.6 million, a 3% increase compared to the first quarter of fiscal 2022, primarily due to higher manufacturing and distribution costs, partially offset by lower sales volumes.
Other segment product contribution margin increased $4.8 million to a loss of $1.8 million in the first quarter of fiscal 2023, as compared to a loss of $6.6 million in the first quarter of fiscal 2022. These amounts include a $8.8 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts reported in the Other segment in fiscal 2023, and a $8.2 million loss related to the contracts in fiscal 2022. Excluding these mark-to-market adjustments and realized settlements, Other segment product contribution margin increased $5.4 million, largely due to favorable price in our vegetable business.
Selling, General and Administrative Expenses
SG&A increased $25.2 million to $116.3 million in the first quarter of fiscal 2023, as compared to $91.1 million in the first quarter of fiscal 2022, primarily due to higher compensation and benefits expense, and higher expenses related to improving our information and technology services infrastructure.
Interest Expense, Net
Compared with the prior year quarter, interest expense, net decreased $1.9 million to $26.0 million, primarily reflecting higher capitalized interest and higher interest income. For more information see “Liquidity and Capital Resources” in this MD&A.
Income Tax Expense
Income tax expense for the first quarter of fiscal 2023 and 2022 was $73.7 million and $8.7 million, respectively. The effective income tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 24.1% and 22.6% for the first quarter of fiscal 2023 and 2022, respectively. The effective tax rate varies from the U.S. statutory tax rate of 21%, principally due to the impact of U.S. state taxes, foreign taxes, permanent differences, and discrete items. Excluding items impacting comparability, our effective tax rate for the first quarter of fiscal 2023 was 25.0%.
Equity Method Investment Earnings
We conduct business through unconsolidated joint ventures in Europe and the U.S. and include our share of the earnings based on our economic ownership interest in them. Our share of earnings from our equity method investments was $174.6 million and $6.2 million for the first quarter of fiscal 2023 and 2022, respectively. Equity method investment earnings included a $144.6 million unrealized gain related to mark-to-market adjustments associated with currency and commodity hedging contracts in the first quarter of fiscal 2023, of which $146.3 million ($108.6 million after-tax, or $0.75 per share) related to changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility. Equity method investment earnings in the prior year quarter included a $4.3 million unrealized gain for mark-to-market adjustments, of which $5.0 million related to changes in natural gas and electricity derivatives. Equity method investment earnings in the first quarter of fiscal 2023 also included a $15.1 million gain (before and after-tax, or
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$0.10 per share) recognized in connection with the Company’s acquisition of an additional 40% interest in LWAMSA. The gain related to remeasuring our previously held 50% ownership interest to fair value.
Excluding the items impacting comparability noted above and the other mark-to-market adjustments, earnings from equity method investments increased $13.0 million compared to the prior year quarter, reflecting favorable price/mix, partially offset by higher manufacturing and distribution costs in both Europe and the U.S.
Liquidity and Capital Resources
Sources and Uses of Cash
We ended the first quarter of fiscal 2023 with $485.3 million of cash and cash equivalents and $994.6 million of availability under our revolving credit facility, net of letters of credit. At the end of the first quarter of fiscal 2023, no borrowings were outstanding under the revolving credit facility.
We believe we have sufficient liquidity to meet projected capital expenditures, service existing debt and meet working capital requirements for at least the next 12 months with current cash balances and cash from operations, and in the longer term, supplemented as necessary by available borrowings under our currently undrawn revolving credit facility.
Cash Flows
Below is a summary table of our cash flows, followed by a discussion of the sources and uses of cash through operating, investing, and financing activities:
Thirteen Weeks Ended
August 28,
August 29,
(in millions)
2022
2021
Net cash flows provided by (used for):
Operating activities
$
192.1
$
161.8
Investing activities
(166.9)
(78.8)
Financing activities
(63.5)
(75.8)
(38.3)
7.2
Effect of exchange rate changes on cash and cash equivalents
(1.4)
(1.0)
Net (decrease) increase in cash and cash equivalents
$
(39.7)
$
6.2
Operating Activities
In the first quarter of fiscal 2023, cash provided by operating activities increased $30.3 million to $192.1 million, compared with $161.8 million in the same period a year ago. The increase related to a $57.4 million increase in income from operations, adjusted for non-cash income and expenses, offset by $27.1 million of cash used for unfavorable changes in working capital. See “Results of Operations” in this MD&A for more information related to the increase in income from operations. Unfavorable changes in working capital primarily related to higher-cost finished goods inventories, due primarily to increased potato and input cost inflation, and a decrease in accrued liabilities due to a shift in the timing of interest payments for our senior notes due 2030 and 2032, which were issued in fiscal 2022. These unfavorable changes were partially offset by a decrease in receivables due to timing of collections, and an increase in income taxes payable due to higher taxable income in the first quarter of fiscal 2023, compared with the prior year quarter.
Investing Activities
Investing activities used $166.9 million of cash in the first quarter of fiscal 2023, compared with $78.8 million in the same period in the prior year. The increase primarily relates to our investments in our chopped and formed capacity expansion, our french fry processing line in American Falls, Idaho, and our greenfield french fry processing facility in Ulanqab, Inner Mongolia, China. We expect to use approximately $475 million to $525 million for capital expenditures, excluding acquisitions, in fiscal 2023. We also used $42.3 million to acquire an additional ownership interest in our joint
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venture in Argentina and used $20.0 million to acquire assets associated with the improvement of our information and technology services infrastructure.
Financing Activities
During the first quarter of fiscal 2023, cash used for financing activities decreased $12.3 million to $63.5 million, compared with $75.8 million used during the same period a year ago. During the first quarter of fiscal 2023, financing activities primarily related to additional borrowings under the RMB-denominated loan facility for net proceeds of $13.8 million, offset by $8.0 million of debt and financing obligation repayments, and the payment of $35.3 million of cash dividends to common stockholders. In addition, we used $28.4 million of cash to repurchase 404,476 shares of our common stock at an average price of $70.11 and withheld 77,756 shares from employees to cover income and payroll taxes on equity awards that vested during the period.
During the first quarter of fiscal 2022, financing activities primarily related to the payment of $34.4 million of cash dividends to common stockholders, and $7.9 million of debt and financing obligations repayments. We also used $26.0 million of cash to repurchase 395,361 shares of our common stock at an average price of $65.86 and withheld 111,488 shares from employees to cover income and payroll taxes on equity awards that vested during the period.
For more information about our debt, interest rates, maturity dates, and covenants, see Note 9, Debt and Financing Obligations, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report and Note 7, Debt and Financing Obligations of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of the Form 10-K. At August 28, 2022, we were in compliance with the financial covenant ratios and other covenants contained in our credit agreements.
Obligations and Commitments
There have been no material changes to the contractual obligations disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Form 10-K.
Non-GAAP Financial Measures
To supplement the financial information included in this report, we have presented product contribution margin on a consolidated basis, Adjusted EBITDA, Adjusted EBITDA including unconsolidated joint ventures, Adjusted Net Income, and Adjusted Diluted EPS, each of which is considered a non-GAAP financial measure.
Product contribution margin is one of the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. Product contribution margin represents net sales less cost of sales and A&P expenses. Product contribution margin includes A&P expenses because those expenses are directly associated with the performance of our segments. Our management also uses Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures to evaluate our performance excluding the impact of certain non-cash charges and other special items in order to have comparable financial results to analyze changes in our underlying business between reporting periods. We include these non-GAAP financial measures because management believes they provide useful information to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making. We believe that the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing our operating performance and underlying prospects. These non-GAAP financial measures should be viewed in addition to, and not as alternatives for, financial measures prepared in accordance with GAAP. These measures are not a substitute for their comparable GAAP financial measures, such as gross profit, net income (loss), or diluted earnings per share, and there are limitations to using non-GAAP financial measures. These non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures the same way.
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See “Results of Operations – Thirteen Weeks Ended August 28, 2022 compared to Thirteen Weeks Ended August 29, 2021 – Net Sales, Gross Profit, and Product Contribution Margin” above for a reconciliation of product contribution margin on a consolidated basis to gross profit.
The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures:
Thirteen Weeks Ended
August 28,
August 29,
(in millions)
2022
2021
Net income
$
231.9
$
29.8
Equity method investment earnings
(174.6)
(6.2)
Interest expense, net
26.0
27.9
Income tax expense
73.7
8.7
Income from operations
157.0
60.2
Depreciation and amortization
48.7
46.0
Adjusted EBITDA
205.7
106.2
Unconsolidated Joint Ventures
Equity method investment earnings
174.6
6.2
Interest expense, income tax expense, and depreciation and
amortization included in equity method investment earnings
8.9
11.0
Items impacting comparability
Impact of LWM natural gas and electricity derivatives (a)
(146.3)
(5.0)
Gain on acquisition of interest in joint venture (b)
(15.1)
—
Add: Adjusted EBITDA from unconsolidated joint ventures
22.1
12.2
Adjusted EBITDA including unconsolidated joint ventures
$
227.8
$
118.4
(a) Equity method investment earnings for the thirteen weeks ended August 28, 2022 and August 29, 2021 included a $146.3 million ($108.6 million after-tax, or $0.75 per share) and $5.0 million ($3.7 million after-tax, or $0.02 per share) unrealized gain, respectively, related to mark-to-market adjustments associated with changes in natural gas and electricity derivatives as commodity markets in Europe have experienced significant volatility.
(b) Equity method investment earnings for the thirteen weeks ended August 28, 2022 included a $15.1 million gain (before and after-tax, or $0.10 per share) recognized in connection with our acquisition of an additional 40% interest in our Argentina joint venture, increasing our ownership from 50% to 90%. The gain related to the remeasuring of our previously held 50% ownership interest to fair value.
The following table reconciles net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS:
For the Thirteen Weeks Ended
August 28,
August 29,
August 28,
August 29,
2022
2021
2022 (a)
2021 (a)
(in millions, except per share amounts)
Net Income
Diluted EPS
As reported
$
231.9
$
29.8
$
1.60
$
0.20
Items impacting comparability:
Impact of LWM natural gas and electricity derivatives (b)
(108.6)
(3.7)
(0.75)
(0.02)
Gain on acquisition of interest in joint venture (c)
(15.1)
—
(0.10)
—
Total items impacting comparability
(123.7)
(3.7)
(0.85)
(0.02)
Adjusted
$
108.2
$
26.1
$
0.75
$
0.18
(a) Diluted weighted average common shares were 144.6 million and 146.9 million for the thirteen weeks ended August 28, 2022 and August 29, 2021, respectively.
(b) See footnote (a) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.
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(c) There was no tax impact associated with the gain of an additional 40% interest in our Argentina joint venture. See footnote (b) to the reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA including unconsolidated joint ventures above for a discussion of the item impacting comparability.
Off-Balance Sheet Arrangements
There have been no material changes to the off-balance sheet arrangements disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Form 10-K.
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Form 10-K. There were no material changes to these critical accounting policies and estimates during the first quarter of fiscal 2023.
New and Recently Adopted Accounting Pronouncements
For a list of our new and recently adopted accounting pronouncements, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, of the Condensed Notes to Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this report.