Good day, and welcome to the Lamb Weston Fourth Quarter and Fiscal Year 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dexter Congolay, Vice President, Investor Relations of Lamb Weston. Please go ahead, sir.
Good morning, and thank you for joining us for Lamb Weston's 4th quarter fiscal year 2019 earnings call. This morning, we issued our earnings press release, which is available on our website, lamweston.com. Please note that during our remarks, we'll make some forward looking statements about the company's performance. These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties.
Please refer to the cautionary statements and risk factors contained in our filings with the SEC 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. With me today are Tom Werner, our President and Chief Executive Officer and Rob Ignat, our Chief Financial Officer.
Tom will provide an overview of our performance for the year as well as some comments on the operating environment we expect to see in fiscal 2020. Rob will then provide the details on our Q4 and full year results as well as our fiscal 2020 outlook. With that, let me now turn the call over to Tom.
Thank you, Dexter. Good morning, everyone, and thank you for joining our call today. In fiscal 2019, we delivered another year of record financial results and significantly exceeded the financial targets that we initially outlined a year ago. We delivered these results with a strong performance in our base business, which more than offset crop related challenges facing our European joint venture. For the year, sales were up nearly 10% with a good balance of higher volume and price mix.
Adjusted EBITDA, including unconsolidated joint ventures, was also up 10%, driven by strong gross profit growth. Adjusted earnings per share increased more than 20%, driven by operating gains and the benefit of tax reform. And finally, we generated more than 40% increase in cash flow from operations and invested much of that cash back into the business, while also returning $145,000,000 of cash to shareholders. This performance reflects our commercial, supply chain and support team's successful execution against our three strategies of accelerating category and customer growth, differentiating our global supply chain to drive growth and investing for growth. Let me take you through some highlights for each of these.
To accelerate category and customer growth, our global innovation and supply chain teams work closely to develop, produce and sell a higher amount of limited time offering products in the U. S. And key markets in Asia. These LTOs enable customers to expand their menus with exciting new products and increase traffic into their stores. For the year, about a quarter of our global segment volume growth was driven by increased LTO penetration.
In addition, we continue to partner with U. S. And non U. S. Restaurant chains as they look to expand operations internationally.
In our Foodservice segment, we successfully replaced our broker relationships with a direct sales force solely focused on selling frozen potato products to small and regional chain customers as well as single restaurants. Over the course of the year, the new team was able to drive overall volume growth, including for our Lamb Weston branded products. Over the long term, we expect our direct sales force will lead to deeper customer relationships and broader customer coverage, leading to faster growth and optimized product mix. In retail, we help drive overall category growth with distribution gains for our grown in Idaho, Alexia and licensed brand products. For the year, nearly all of our 7% volume growth in retail was from our branded products.
Our investment in part has encouraged retailers to expand freezer shelf space allocated to the frozen potato category. Regarding our strategy to differentiate our global supply chain to drive growth, we continue to leverage our land Weston operating culture to generate cost savings and efficiencies as well as to stretch production capacity to improve profitability and support customers' growth. We've also completed much of the upfront work to replace our obsolete enterprise resource planning system. Once the new system is implemented over the next couple of years, we expect it to drive productivity and reduce costs by streamlining supply chain, commercial and back office processes, while also improving our demand and operations planning across our global year by having our North American plant serve Lamb Weston Meyer and its customers as they manage through the effect of a poor crop in Europe. We also leveraged our operations in Canada to manage through a shifting trade and tariff environment.
For our 3rd strategy leg, invest for growth, we acquired some businesses and built new capacity. We completed the purchase of our joint venture partner interest in Lamb Weston BSW, allowing us to realize the full financial benefit of the JV's production facility. We also acquired Marvel Packers, a 50,000,000 pound potato processor focused on serving the fish and chip market in Australia. And earlier this month, we completed the acquisition of Ready Mills, a £70,000,000 potato processor that also services the Australian fish and chip market. Together, these two acquisitions provide us with an opportunity to strengthen our position in Australia.
We'll continue to seek other acquisition opportunities to strengthen and broaden our manufacturing footprint outside North America. And finally, we completed a £300,000,000 expansion of our Hermiston, Oregon facility in May. This investment will enable us to continue to support customers' growth in both North America and key export markets as well as provide more flexibility to leverage our innovation capabilities to partner with our customers to develop innovative and traffic driving limited time offerings. We're very pleased with the progress we've made on these initiatives and we'll continue to focus on executing these strategies to drive sustainable growth over the long term. In addition to delivering strong business performance, we're proud of the work we're doing to support our local communities.
We continue to focus on combating food insecurity by supporting regional food banks and other hands on efforts through local outreach programs and employee volunteer activities. Through the Lamb Weston Foundation, we've also provided financial assistance to organizations combating food insecurity and other worthy causes, and we have contributed another $5,000,000 to the foundation to continue that support over the coming years. Now turning to our operating environment. For fiscal 2020, we believe the overall operating environment will continue to be generally favorable, assuming no significant economic shocks or material changes to trade policies. In the U.
S, we expect restaurant traffic will continue to grow, supported by low unemployment, rising disposable income and additional promotional activity by quick service restaurants, including more limited time product offerings. This increased traffic typically translates into solid demand growth for our products. We also see continued solid demand growth in Europe and our other key developed markets like Australia, Japan and South Korea, largely fueled by many of the same factors driving U. S. Demand.
In our key emerging markets such as China, Southeast Asia and the Middle East, we anticipate continued strong demand growth as customers build additional restaurant outlets and as traffic continues to increase as consumers look towards Western style dining options. With respect to supply, recently added industry capacity in North America as well as capacity that is scheduled to become operational within fiscal 2020 should allow processors to operate their factories closer to normalized rates. However, due to continued demand growth, we expect industry utilization will remain relatively high. As a result, we expect that we'll continue to be able to increase prices overall to offset modest input cost inflation. And while we've only finalized a handful of the global and regional restaurant chain customer contracts over the past few months, we are encouraged by how the pricing discussions have been progressing.
We'll have a clear view of how the overall pricing situation will shake out as we continue contract negotiations over the next few months. Of those chain restaurant customer contracts that were renewed over the past couple of years, especially for customers in our Global segment, most were renewed on a multiyear basis. As we enter into the 2nd and third year of those agreements, we'll continue to realize the price increases embedded in those contracts. With respect to costs, we expect the environment in North America to be manageable. Per pound contracted prices for raw potatoes, which account for about onethree of our cost of goods sold, are set to increase low to mid single digits.
Taken together, we anticipate that inflation rates for our other key inputs and supply chain costs such as oils, packaging, transportation and warehousing, will also be in that range. In Europe, due to a poor crop last year, raw potato prices were high and supplies were limited. Assuming an average crop this year, we anticipate that operating levels will normalize, which may lead to increased competitive intensity in Europe and in the region's key export markets. Nonetheless, lower raw potato costs resulting from an average European crop should provide an opportunity for Lamb Weston Meyer to improve profitability, especially as these lower cost potatoes become available in the second half of our fiscal year. So in summary, we expect to continue to build upon the strong financial results that we delivered in fiscal 2019 and the good momentum in each of our channels by continuing to focus on serving our customers and executing against our strategic initiatives.
As a result, we believe that we are well positioned to deliver solid results again in fiscal 2020 and remain committed to investing back in our business to support sustainable top and bottom line growth and create value for all our stakeholders over the long term. Now let me turn the call over to Rob to provide the details on our results in our fiscal 2020 outlook trial. Thanks, Tom. Good morning, everyone. As Tom noted, we're pleased with our strong sales and EBITDA growth in the Q4 and for the full year.
Specifically in the quarter, net sales increased 9% to just over $1,000,000,000 driven by a good balance of favorable price mix and volume. Price mix was up 3% due to pricing actions in our Global and Foodservice segments as well as favorable mix. Volume increased 6%, led by growth in our Global segment. Marble Packers, our acquisition in Australia that we closed in the middle of our fiscal year, added about 0.5 point of volume growth. For the year, sales grew 10% to 3,800,000,000 dollars with volume up 5% and price mix also up 5 points.
Gross profit increased $18,000,000 or 8 percent to $251,000,000 in the quarter. Higher prices, favorable mix, volume growth and supply chain efficiency savings drove the increase, more than offsetting the impact of input manufacturing, transportation cost inflation. The increase in gross profit was tempered by a $7,500,000 loss in unrealized mark to market adjustments related to commodity hedging contracts this quarter. This compares to a $1,000,000 loss in the prior year period. Gross profit also included approximately $3,000,000 of cost related to the start up of our new French fry line in Hermiston, Oregon.
All in, our gross margin percentage in the quarter was down 40 basis points to 25%. However, excluding the unrealized mark to market adjustments and the Hermiston start up cost, gross margin expanded by 50 basis points. For the year, gross profit grew 14% and gross margin expanded 100 basis points to 26.7%. The improvements were largely driven by favorable price mix, volume growth and supply chain productivity more than offsetting cost inflation and higher depreciation expense primarily associated with our French fry production line in Richland that became operational in mid fiscal 2018. SG and A expense, excluding items impacting comparability, increased about $4,000,000 to $103,000,000 in the quarter.
The increase in SG and A was due to investments in our sales, marketing, operating and information technology capabilities to support growth and drive operating efficiencies. Advertising and promotional expense was down about $4,000,000 due to the timing of spending last year behind Grown in Idaho. For the year, A and P spending was up less than $1,000,000 to 32,000,000 dollars In addition, as Tom noted, we contributed an additional $5,000,000 to our charitable foundation, which focuses on combating food insecurity. We made a similar contribution in the Q4 last year when we initially set up the foundation. Adjusted operating income increased $14,000,000 or 10 percent to $148,000,000 in the quarter behind strong sales and gross profit growth.
For the year, adjusted operating income was up 14% to $668,000,000 Similar to the Q4, the increase was due to higher sales and gross profit, partially offset by higher SG and A. Equity method investment earnings from our unconsolidated joint ventures, which include Lamb Weston Meyer in Europe and Lamb Weston RDO in Minnesota were $15,000,000 in the quarter. Excluding mark to market adjustments related to commodity hedging contracts, equity earnings were down about $12,000,000 largely due to higher raw potato costs and lower sales volumes in Europe associated with more crop. For the year, equity earnings were $60,000,000 Excluding the mark to market impact, equity earnings declined about $22,000,000 due to the crop the proportional EBITDA from our 2 unconsolidated joint ventures, increased $13,000,000 or 6% to $215,000,000 for the quarter. Operating gains by our base business, along with contributions from acquisitions, drove about $23,000,000 of EBITDA growth.
Even though we absorbed higher mark to market losses and Hermiston start up costs, this was partially offset by a $10,000,000 decline in EBITDA from our unconsolidated joint ventures. For the year, EBITDA increased $84,000,000 or about 10% to $904,000,000 That's at the high end of the guidance range that we provided at the end of the 3rd quarter. Despite the mark to market losses and a $5,000,000 contribution to our charitable foundation in the 4th quarter. Moving down the income statement. Interest expense was about $27,000,000 which is similar to prior year.
Our effective tax rate, excluding the impact of comparability items, was about 20% and includes the benefit of discrete items. For the year, our rate was about 22%. Turning to earnings per share. Adjusted diluted EPS was up 0 point 0 $9 or 14% to $0.74 in the quarter. Operating gains in our base business and a $0.02 benefit from a lower tax rate and approximately $0.02 benefit from the BSW acquisition drove the increase, partially offset by lower equity earnings.
For the year, adjusted diluted EPS was up $0.56 or 21 percent to $3.22 The increase was driven by higher income from operations, a $0.17 benefit from a lower tax rate due U. S. Tax reform and a $0.05 benefit from the VSW acquisition. These gains were partially offset by lower equity earnings. Now let's review the results for each of the business segments.
Sales for our Global segment, which includes top 100 U. S.-based change as well as all other sales outside of North America, were up 13% in the quarter. Price mix rose 3%, primarily reflecting pricing adjustments associated with multiyear contracts. Volume grew 10%. The strong increase was driven by growth in sales to strategic customers in the U.
S. And key international markets, including the customers affected by the challenging crop in Europe as well as increased sales of limited time offering products. In addition, the MarlPackers acquisition contributed about 1 point of volume growth. For the year, global sales grew 12% with volume up 7 points and price mix up 5. Global's product contribution margin, which is gross profit, less advertising and promotional expense, increased $11,000,000 or 11%.
For the year, it's up $71,000,000 or 19%. Favorable price mix, volume growth and supply chain efficiency savings drove the increases, which were partially offset by cost inflation. While Global's price mix and volume growth more than offset higher costs on a dollar basis in the quarter, the segment's contribution margin percentage declined 40 basis points. Increased international sales, which generally carry lower margins than the segment's average, accounted for some of the margin decline. For the year, Global's product contribution margin percentage was up 120 points.
Sales for our Foodservice segment, which services North American Foodservice distributors and restaurant chains outside the top 100 North American restaurant customers, increased 7% in the quarter. Pricemix increased 6%, reflecting the benefit of pricing actions initiated in the fall of 2018 as well as improved mix. Volume increased 1%, led by growth of Lamb Weston branded products. For the year, sales increased 5% with mix up 5% and volume flat. Food services product contribution margin increased $15,000,000 or 16% in the quarter, while contribution margin percentage expanded 2 60 basis points.
For the year, the segment's contribution was up $37,000,000 or 10%, and margin percentage expanded 150 basis points. The increases were driven by favorable price mix and supply chain efficiency savings and were partially offset by cost inflation. Sales in our retail segment increased 3% in the quarter, driven by 4 points of volume growth behind increased sales of Grown in Idaho and other branded products as well as private label. Price mix fell 1% largely due to increased trade support behind our branded portfolio. For the year, sales were up 11% with volume up 7 points and price mix up 4.
Retail's product contribution margin declined modestly in the quarter as lower advertising and promotional expense offset increased trade support. Retail's contribution margin percentage fell 70 basis points. For the year, retail's contribution margin increased $11,000,000 or 13%, while margin percentage expanded by 40 basis points. Moving to our balance sheet and cash flow. Our total debt at the end of the quarter was about $2,300,000,000 This puts our net debt to adjusted EBITDA ratio at 2 point times.
We continue to target a leverage ratio of 3.5 times to 4 times over the longer term. We remain comfortable being below that range as we continue to explore potential acquisition opportunities. With respect to cash flow for the year, we generated about $680,000,000 of cash from operations. That's up from about $480,000,000 or about 42% versus last year, driven by strong earnings growth and lower cash taxes as a result of U. S.
Tax reform. Our top priorities in deploying that cash continue to be investing to grow the business organically and through acquisitions. In fiscal 2019, we spent about $335,000,000 on capital expenditures, including the construction of our new French fry line in Hermiston, Oregon. We also completed the purchase of the remaining interest in Lamb Weston VSW for about $80,000,000 and expanded our global footprint with the acquisition of Marvel Packers in Australia for about $90,000,000 dollars Finally, we returned $145,000,000 in cash to shareholders. We paid about $113,000,000 in dividends.
And in the 5 months in which we had a share buyback program, we repurchased nearly 460,000 shares for about $32,000,000 At the end of fiscal 2019, we had about $220,000,000 remaining in our share repurchase authorization. Turning to our fiscal 2020 outlook. As Tom noted, we anticipate the overall operating environment to remain generally favorable with continued solid demand growth in our markets. New industry capacity should allow processors to operate their factories at more normalized rates, easing the strain on those assets while also providing more flexibility to support customers' growth. Consistent with our overall guidance philosophy, we're taking a prudent approach to our fiscal 2020 outlook.
Specifically, we're targeting sales to grow at mid single digit rate, including the benefit of the 53rd week, which will benefit the 4th quarter. We expect volume to be the primary driver of sales growth. The incremental capacity from available from our £300,000,000 Hermiston, Oregon production line, which became operational at the end of fiscal 2019, will help support that growth. In the near term, you shouldn't consider all £300,000,000 to be incremental. As when we commissioned the line at Richland 2 years ago, we'll take some time to ramp up the facility.
We'll also shift production to Hermiston from other lines, which we'll take down for some deferred maintenance as well as some retooling to meet evolving market needs. In addition to volume growth, we expect that prices will increase modestly and enable us to offset input cost inflation. We've taken a prudent approach when incorporating expected results of pricing discussions in our outlook. Most of our chain restaurant contracts in our global segment are multiyear agreements, and we're in the process of renegotiating renewals for about a quarter of our global segment volume this year. While we've been encouraged by how the discussions have proceeded so far, there's always competition for these contracts.
We'll remain disciplined and take an approach designed to maintain and reinforce our strategic customer relationships. As Tom noted earlier, for those multiyear chain restaurant contracts that were renewed over the past couple of years, we'll continue to realize the price increases embedded in those contracts. We're targeting adjusted EBITDA, including unconsolidated joint ventures, to be in the range of $950,000,000 to $970,000,000 including the benefit of the 53rd week. We expect gross profit growth will drive a significant portion of the EBITDA increase and that volume gains will largely drive gross profit growth. As I just noted, favorable price mix and productivity savings should offset higher input manufacturing, transportation and warehousing inflation as well as an increase in depreciation expense associated with the new Hermiston production line.
The rise in our production costs reflect an increase in the weighted average contracted raw potato price in the lowtomidsingledigitrange on a per pound basis. Contracted prices, as you may recall, are only one element of understanding our total potato cost. Potato yield, quality and how they hold up in storage are all key to determining how the potatoes perform in our production facilities and our actual costs. As typical, when we provide our initial outlook, our financial targets assume an average potato crop. At this point, we don't see anything negative for the North American crop in our growing areas.
We'll have more insight into the yield and quality of the potato crop as the harvest takes place later in the year. Through a combination of volume growth, favorable price mix and supply chain savings, we expect to largely sustain gross margin percentages. We're projecting that the increase in gross profit will be partially offset by higher SG and A, reflecting inflation and incremental investments in sales, innovation and other support capabilities as well as investments to implement a new ERP system. We expect our base SG and A, which excludes advertising and promotional expense, as well as ERP investments will continue to be within our target of 8% to 8.5% of sales. While we're targeting A and P expense to remain in line with what we spent in fiscal 2019, our total ERP spending will depend among other factors on the pace of the implementation.
At this point, we're estimating ERP expenditure between $10,000,000 $20,000,000 for the year. As we previously noted, we expect our total SG and A spending to be elevated until we create the ERP implementation over the next couple of years, after which we'll begin to reduce our total SG and A expense excluding A and P expense. In addition to our expected operating gains, our outlook includes approximately $10,000,000 earnings benefit from acquiring the 50% of our consolidated joint venture, Lamb Weston BSW. This benefit will be realized in the first half of fiscal twenty 20. For equity earnings, we're assuming an average crop in Europe, which should drive an increase versus fiscal 2019 results as potato costs decline and sales volumes improve.
However, our European JVs results through the first half of fiscal twenty twenty will continue to be challenged as it works through the last of the old crop. With respect to the new crop, while European processing potato processing potato futures increased in response to the recent heat wave, moderating temperatures and recent rains have helped the crop. However, it's still too early to determine how the crop there will perform overall. In addition to our operating targets, we anticipate total interest expense of around $110,000,000 which is about the same as in fiscal 2019. We're targeting effective tax rate of 23% to 24%, which is in line with our long term target.
We expect capital expenditures of about $275,000,000 which includes capital in support of the ERP replacement as well as some relatively large maintenance and facility upgrade projects. And finally, we expect total depreciation and amortization expense will be approximately $175,000,000 up from nearly $160,000,000 this past year, primarily reflecting depreciation expense associated with the new Hermiston production line. So looking at our fiscal 2020 outlook at a high level, we're targeting mid single digit sales growth, largely driven by volume growth and modestly higher price mix. For earnings, we expect to deliver adjusted EBITDA, including unconsolidated joint ventures, of about $950,000,000 to $970,000,000 largely driven by sales and gross profit growth. Before turning the call back over to Tom, there's one more item to address.
As we stated in this morning's press release, we plan to report in our Form 10 ks a material weakness related to a deficiency in an information technology general control. We do not expect these matters will result in any changes to our financial statements. We've begun remediation efforts and expect that the remediation of the material weakness will be completed as soon as practicable during fiscal 2020. Now here's Tom for some closing comments. Thanks, Rob.
Let me quickly sum up by saying, again, in fiscal 2019, we finished strong and delivered another record year of sales and earnings. We built great operating momentum and are well positioned to deliver solid results in fiscal 2020. And we remain focused on executing against our strategic initiatives to support long term growth and create value for all our stakeholders. I want to thank you for your interest in Lamb Weston, and we're now happy to take your questions.
Thank you. We'll take our first question from Andrew Lazar of Barclays. Please go ahead.
Good morning, everybody.
Good morning, Andrew.
Hi there. Two questions from me, if I could. I guess first would be assuming that Lamb Weston gets a healthy benefit year over year from the equity method earnings, has the benefit from the extra week as well as the BSW and then some contribution from recent acquisition as well. I guess I'm trying to get a sense of what that implies for sort of base business profit growth in fiscal 2020. It would seem like perhaps that might be fairly modest or muted.
I realize there's higher ERP spend, which impacts some of that. And as you said, you're being prudent on sort of pricing and your outlook there. But perhaps just some comments around sort of base business profit growth and how that plays out in fiscal 2020?
Sure, Andrew. This is Rob. You can get to the BSW historically out of the financials, as you see, they add back. And so as we say, that's call it $10,000,000 of add back there. The 53rd week adds a bit.
Taking that altogether, take out the ERP increase expense related to that, you still get into lowtomidsingledigit kind of organic growth and profitability in the business.
And then if we're thinking about organic sales, I think, for fiscal 2020, looking for mid single digit rise, obviously, you take out the benefit from the 53rd week. So I don't know, maybe we're talking more 3% or so. And then I assume there's some benefit from obviously the recent acquisition in Australia. So I mean, are we talking really more of something like 2% or so organic and volume is the largest part of that, it sounds like very limited or as you said very modest in the way of price. I'm just trying to get a sense if that is if that's right, is that consistent, I guess, with the being encouraged, if you will, about some of the initial conversations around pricing that you've had?
Andrew, this is Tom. I'm encouraged by the contract negotiations that are happening right now in terms of the pricing. And the other thing to remember too, we always take a prudent approach to guidance. We also have the carryover contracting in our global business unit, the pricing that we put in place in the last couple of years. And I would say, when you step back this fiscal year, it's going to be largely driven the net sales by volume and more than it will be by price as it has in the last couple of years.
But I'm confident that how the contract discussions are progressing, feel good about how we've projected our pricing this fiscal year. And I think as we evaluate what's going on in the marketplace, I think there's going to be opportunities for us to continue to drive the pricing across multiple channels.
Okay. Thanks very much.
Let me take our next question from Chris Spruill of Stifel. Please go ahead.
Hi, good morning.
Good morning, Chris.
Hi. I wanted to ask, there's
been a lot of concern around incremental capacity and it sounds like that will have a minimal effect on pricing overall as you're seeing some good results so far in your negotiations. Where is utilization overall for the industry? Do you have a good sense of that? And maybe even including the facilities coming on later this year and early next year. Do you have a good sense of that and therefore kind of where the industry will be operating overall at that level?
Yes. Generally, we believe the with the additions in North America, including our Hermiston plant, this year, we're going to operate around the 95%, 96% level in North America. In Europe, it's a little bit of a different story. There's been a lot of capacity put on in Europe. They compounded with the potato crop issue last year.
It's a bit harder to read at this time until we get further in this fiscal year. But generally, we believe they're operating at a pretty high utilization rate as well. So as we stated in the past, that's kind of normalized levels. I think over time with the category growth at 1.5 to 2.5 points as we're projecting, it's going to continue to elevate utilization rates over the next couple of years as it has in the past year. So and then the industry, based on how they've been running the past couple of years, at a really high 100% utilization rate.
I know in our business, we have some catch up things to do in maintenance that will take some capacity offline for us for a period of time. So I think if you think about it, Chris, running a business at utilization rates that we want at, is that we run at, it's a pretty high utilization rate, and that's just the nature where we're at right now. So a lot of these things really just need to normalize. And then as the category continues to grow, we're going to be evaluating additional capacity ourselves potentially in the near future.
Okay. That's good to know. And just to be clear, at that level of utilization, you believe you can price the cost inflation at that level. Is that correct?
Yes. I feel really confident that we can do that.
Okay. And just one follow-up would be on the ERP spending. I think you said $10,000,000 to $20,000,000 expense this year. But you said how much you have in capital, like the capital portion of that? And then just to get an idea, is that a little higher than next year as you kind of push through this implementation?
That's my last question for you.
Yes, Chris, this is Rob. Yes, the $10,000,000 to $20,000,000 expense, we have not disclosed specifically the capital on that and the timing of that is, as I said in prepared remarks, that part of that is pace of timing of implementation as well. But that but the ERP spending is embedded within the capital guidance overall capital guidance I gave you.
And then that would grow next year then, Ram?
Yes. Again, it depends on timing of implementation, but I think that's fair to say it would be a little bit higher next year.
Okay. Thanks so
much. Thanks.
Thank you. And we'll now take our next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes, thanks. Good morning, everyone.
Hi, Adam.
So I guess first coming back to the question on price mix and the QSR negotiations a little bit. The guidance for the year assumes kind of a modest contribution and this quarter and last you're running about 3% price mix at the consolidated level. We're still in calendar 'nineteen for the first half of fiscal 'twenty. So my base assumption will be similar to that for the first half of your fiscal year. And you've got inflation escalators for the contracts that roll into that are up for renewal for 2020.
So in the context of guidance that assumes kind of a modest contribution, it would seem like there's a notable decel embedded in the back half of the fiscal year on the price mix side. And I want to just make sure I'm thinking about that right. And if so, kind of just talk about whether it's the inflation escalators from contracts not up for renewal or is the price mix on the new contracts more like 0 to 1? I'm just trying to make sure I understand the math there.
Yes. Adam, again, as consistent with practice, we're being very prudent, and as I said in prepared remarks, being very prudent of how those negotiations on pricing are going to evolve. Again, also recognize that growth as we're projecting growth, international markets, we assume are going to grow a bit quicker than domestic markets in terms of demand. And those typically, as we've talked about before, command a lower margin than our domestic markets. And so part of it is into that mix piece of across business and customer mix with international waiting a little bit that's impacting your math there.
Okay. That's helpful. So maybe that actually is a good segue into the second question. And you talked about being kind of happy with the pricing so far on the QSR negotiations. Can you talk maybe about on the volume market share side, just the aggregate kind of are
we happy with just with pricing?
Are we happy with the volume market share price in aggregate? Just maybe frame it a little bit more broadly than just the pricing component.
Yes. So the Adam, when you step back to your point in aggregate, we're very comfortable with not only the pricing component of it, but volume as well. And as I've as we've worked hard over the last 2, 3 years to align our segments with strategic customers, that are growing in the marketplace. So we have a really good customer portfolio mix, not only in the global segment, but in foodservice and retail. And when you step back and look at the both pieces, volume and pricing, we're in a sweet spot right now.
So all this has to play out over the next couple of months, but I feel good about the growth opportunities we have in all of our segments.
Okay. That's helpful. And then just a very quick follow-up for me. The acquisitions in Australia that you've done in recent months, I mean, I would guess that those are $10,000,000 to $15,000,000 EBITDA tailwind to fiscal 2020. Is that assumption reasonable and that's in the guidance?
Yes. I think, Adam, that we don't want to talk about individual plant profitability per se, but I think it's fair to take the capacity volumes of those and apply a margin against those,
and you're going
to get reasonably close and that's going to get you somewhere in that range. Also recognize that for the 1st few months that an acquisition, we have the markup on the inventory. So we won't get that margin on those acquisitions for the 1st few months. But bottom line answer to your question, is it in the guidance? Yes, it is.
Just want to add and add it mechanically, just so you know, the Marvel acquisition we got middle of last year, just mechanically, we did get the benefit of that in the Q4 and we talked about that in the prepared remarks, how much that was. And then the most recent acquisition, Ready Meals, at $70,000,000 we got that at the when was that?
July 2, very first of the year. Yes.
So we're about 1 month in. So not all of it's going to be obviously in the 1st year.
Okay. That's helpful color. I appreciate all the time. Thanks.
Thank you. And we'll now take our next question comes from Tom Palmer of JPMorgan.
Good morning.
Thanks for the question.
Could you provide some clarity about the gross margin outlook? You're calling out modestly higher price mix, lowtomidsingledigit input cost inflation, plus looks like you'll have higher D and A expenses for the new facility. All this together seems like it would suggest gross margin pressure, but you're guiding to sustain your gross margin. So I guess, am I interpreting these pieces correctly? And are there other items that should help the gross margin line that are not being factored in that I just listed?
Yes, Tom, this is Tom Werner. I'm really confident that we can maintain margin levels where they're at today. And we are we continue to focus on we've had a lot of discussion about prices this morning already, but we're focusing on mix too across all of our segments and customer mix. And we're also leveraging our landless and operating culture and supply chain to drive cost savings across our supply chain network. So it's the business unit leaders, sales team, everybody is focused on maintaining our margin levels.
And I'm confident based on how things are playing out early on that we'll be able to maintain our gross margins at these levels and inch them up over the course of time.
Okay. Thanks for that. And then I know you're a little limited in how much you can discuss here, but I wanted to follow-up on negotiations again. You mentioned about a quarter of your global contracts were closed for renewal this year. How does that compare to the number coming up for renewal next year?
And are you seeing or looking to kind of change the terms in terms of the length of how long they continue for or any changes in terms of how you have structured escalators relative to the past?
Yes. So we've worked over the past several years to spread the timing across all of our segments that we negotiate contracts with to sequence them 1, 2, 3 years where we can. So we have changed that sequencing in terms of negotiation timing. So as far as next year, I'm not going to get into specifics about what's coming up for bid next year. Next year, we'll have the same conversation and be talking about negotiations.
Okay. Thank you. Thank you. And we'll now take our next question. It comes from Brian Spillane of Bank of America.
Hi. Good morning, everyone.
So two questions. Just two quick
ones for me. First, the strong volume performance in the global segment in the Q4, was there any benefit that you got from I think you might have mentioned in prepared remarks, but just any benefit you may have gotten from taking some orders from Europe or due to the shortage in Europe? And second, does any of that strength kind of is it all pull forward from 2020?
Yes. Brian, in terms of the picking up some orders related to Europe, that was really more focused on strategic European customers in support of those. The volume wasn't the big driver there. And in terms of is it pull forward, no, I wouldn't say any of that's pull forward.
Okay, great. And then I guess second one is just as we're modeling 2020 and I know there's been a lot of focus on price in the discussion today. But is mix going to be negative? Just it seems to me that maybe the global segment ends up contributing a little bit more and that might be a negative as you roll up at a consolidated level on mix. Just trying to get understanding how mix affects the price mix piece on an enterprise level?
Sure. On the mix side, again, I think your point spot on. The global growth is we're expecting to be a bit faster, recognize in retail, for example, we've had great growth here over the last couple of years. Expect that growth rate to moderate somewhat, but continue to push the mix within retail for the branded products and that will help our mix within the segment. Foodservice, similar drive growth with market, but don't expect outsized growth.
It's really the growth in global driven by export that's going to pressure a little bit margins in global margin percentage in global as the mix turns to more export business relative to the growth rates domestically. And as mentioned, those export business tends to be a little bit lower margin.
All right. Thank you.
Thank you. And then we take our next question from David Mandel of Consumer Edge.
Hi, good morning guys. Thank you for taking my question. It's a quick one. When it comes to Europe, it looks like the weather is getting a little bit better, but there might be another bad crop. Can you point to any learnings that came from last year?
Were there any surprises that the European processors were using table potatoes and stored inventory? So I was wondering if you could speak to any learnings that you could share with us.
Sure, David. This is One of the things, the opportunity in all that for Lamb Weston is the ability for ourselves, Lamb Weston and Lamb Weston Meyer, to come together and look at, 1st and foremost, the customers that we needed to make sure get serviced. And we did move some production around to North America from Lamb Weston Meyer. The team over there did a terrific job early on making sure we had sourced the potatoes we needed to service our business. So we got ahead of it, and we organized ourselves more efficiently in terms of moving production around the globe.
That was the big learning. Could we obviously, as we did that, we learned some things. And if that situation ever happens again, we're going to be more efficient at it. In terms of the potato crop this year, yes, Europe has been hot again. And we're obviously close to it on the ground there with the Lamb Weston Meyer team.
The difference is they're getting rain periodically this year even with the heat. It's early on. And as we get to our October call, we'll give you an update on that. But right now, it is hot, but it's still too early to tell the impact on the crop over there.
Great. Thank you very much.
And this concludes our Q and A session for today. So I'd like to hand the call back to our speakers.
Hi, everyone. It's Dexter. If you have any follow-up questions, please send me an e mail first. We can either set the time or either today or later on in the next few days. Thanks for joining the call.
Talk to you later. Thanks.
This concludes today's call. Thank you for your participation. You may now disconnect.