EAGLE, IDAHO — Improved sales volumes in Lamb Weston, Inc.’s Global and Foodservice business units propelled the potato processor’s net income up 18% during the second quarter of fiscal 2020.

Net income for the quarter ended Nov. 24, 2019, totaled $140.4 million, equal to 96c per share on the common stock. It was an increase when compared with the same period of the previous year when the company earned $119 million, or 74c per share.

Quarterly sales rose 12% to $1,019.2 million.

“In the second quarter, we delivered strong sales, volume and earnings growth across each of our core business segments by continuing to execute well across the organization,” said Tom Werner, president and chief executive officer. “We’re generating strong cash flow, and we’re investing that cash back into the business to support customer growth, improve manufacturing operations and systems, and bolster our presence in key markets such as Australia and South America.”

As a result, the company raised its guidance for the full year. Lamb Weston’s sales growth rate is now expected to fall at the high-end of the mid-single digit range, and management increased the company’s EBITDA range from $950 million to $970 million from $965 million to $985 million.

The positive news is challenging management on several fronts, most notably capacity utilization to keep pace with demand and a less-than-ideal potato crop year.

“We have added three new french fry lines since 2014,” Mr. Werner said during a conference call with securities analysts on Jan. 3. “And despite these additions, our current capacity utilization is above our targeted operating rates due to recent demand growth being faster than historical averages. While we are not prepared to announce any capacity expansion projects today, we are aggressively evaluating opportunities to expand production capacity inside and outside North America to support our customers’ growth.”

Despite a weak potato crop year in some parts of the world, Mr. Werner sought to reassure investors that Lamb Weston would not be adversely affected.

“The crop in our growing areas in the Columbia Basin and Idaho will resource the vast majority of our raw potatoes and where we have most of our production facilities is consistent with historical averages in terms of both yield and quality,” he said. “As a result, we expect to operate our plants there at normal utilization rates.”

Poor weather conditions in Alberta, Canada, and Minnesota, two regions where Lamb Weston has processing plants, has affected crop yields, but Mr. Werner said there was enough supply to operate those plants at normal rates.

“So, let me be clear, given our concentration of processing facilities in the Columbia Basin in Idaho as well as our strong grower relationships in Alberta and the Midwest, and most importantly, our decision to source open potato several months ago, we’re confident that we have raw potatoes to deliver our volume growth targets for the remainder of our fiscal year,” he said. “However, potato supply in North America is tight, and this may pressure our ability to pursue incremental volume growth opportunities both domestically and internationally for this crop year. Accordingly, we will continue to evaluate opportunities to improve price and mix in each of our business segments.”

Net sales for Lamb Weston’s Global business unit, which services the top 100 North America-based restaurant chain customers as well as the company’s international business, rose 15% during the quarter to $539.6 million when compared with the same period of the previous year. The company said favorable volume growth, higher price/mix and lower transportation costs drove the increase, more than offsetting input cost inflation, higher manufacturing costs due to inefficiencies, and higher depreciation expense primarily associated with the new Hermiston, Ore., production line.

The Foodservice business unit, which services North American food service distributors and restaurant chains outside the top 100 in North America, saw sales rise 9% during the quarter to $304.9 million.

“Volume increased 5%, led by growth of distributor private label and Lamb Weston branded products,” said Robert M. McNutt, chief financial officer, on Jan. 3. “About half of the volume increase was due to the additional shipping days in the quarter. Even after adjusting for the Thanksgiving shift, we delivered our fourth consecutive quarter of volume growth as our direct sales force continued to strengthen customer relationships. Price/mix increased 4%, primarily reflecting pricing actions taken in October.”

Finally, Lamb Weston’s Retail unit experienced a 7% rise in sales during the quarter to $132.1 million. The business unit saw volumes rise “four points” behind increased sales of branded and private label products, Mr. McNutt said.