Bernadette Madarieta
Chief Financial Officer at Lamb Weston
Thanks, Tom, and Happy New Year, everyone. I also want to start off by thanking the entire Lamb Weston team for the continued execution of our strategies and for delivering another quarter of strong financial results. For our second quarter, sales increased about $455 million or 36% to more than $1.7 billion. About $375 million or more than 80% of the increase was attributable to the incremental sales from the acquisition of the EMEA business.
We'll continue to receive the incremental benefit from the consolidation of the EMEA business in the third quarter. And as a reminder, since we began to consolidate EMEA sales beginning in the fourth quarter of fiscal 2023, those results are included in our last year's sales baseline. Excluding the incremental sales from the EMEA acquisition, net sales grew 6%.
Price/mix was up 12% as we continued to benefit from the inflation-driven pricing actions taken in fiscal 2023, along with the pricing actions taken this year in both our North America and International segments. Mix was also favorable as we continued to strategically manage our product and customer portfolio. Lower freight charges to customers were about a 1-point headwind.
Total sales volumes declined 6%, which was in line with our expectations. The decline was primarily due to the carryover impact of exiting the lower margin business during the second half of fiscal 2023. Volume elasticities or the amount of volume lost in response to inflation-based pricing actions remain low. While sales volumes decline compared to the prior year period, it's a sequential improvement from the 8% decline that we delivered in our fiscal first quarter. The improving trend largely reflects no further impact of the inventory destocking in Asia and North America that we experienced in the first quarter and the gradual backfilling of the business that we chose to exit.
Moving on from sales, gross profit, excluding unrealized mark-to-market gains and losses related to derivatives and items impacting comparability, increased $97 million to nearly $480 million. Our gross profit growth was tempered by a $65 million charge for the write-off of excess raw potatoes. Excluding this charge, as well as the mark-to-market and comparability items, gross profit increased $162 million to more than $540 million.
About half of this increase was driven by the cumulative benefit of pricing actions, mix improvement and supply chain productivity in our legacy Lamb Weston business, which more than offset higher input and manufacturing costs per pound and the impact of lower volumes. The other half of the increase was from incremental earnings from consolidating EMEA. Input costs increased mid-single digits on a per pound basis, which is a bit lower than the mid- to high-single digits that we saw in the first quarter.
The increases were largely driven by a 20% increase in the contracted price for potatoes in North America and continued increases in the cost of ingredients for batter coatings, labor, and other key inputs. The inflation was partially offset by supply chain productivity savings, lower costs for edible oils, and lower freight costs. SG&A, excluding comparability items, increased $42 million to $177 million. More than two-thirds of the increase was from incremental SG&A with the consolidation of EMEA, with the remainder largely driven by higher expenses related to improving our IT and ERP infrastructure, as well as compensation and benefit expenses. All of this led to adjusted EBITDA increasing 15% to $377 million.
Excluding the write-off for excess raw potatoes, adjusted EBITDA increased 36% to $448 million. Higher sales and gross profit in the base business drove most of the growth, with the remainder attributable to the incremental earnings from consolidating EMEA.
Moving to our segments. Sales in our North America segment, which includes sales to customers in all channels in the U.S., Canada and Mexico, increased 10% in the quarter. Price/mix was up 14%, which was driven by the carryover benefit of pricing actions that took effect in fiscal 2023 across each of our primary sales channels, as well as some pricing actions taken this year and favorable mix as we continue to benefit from our revenue growth management and other mix improvement initiatives. Lower freight revenue partially offset the increase by about 1.5 points.
Volume in North America declined 4%, reflecting the carryover impact of exiting lower margin business during the second half of fiscal 2023. This is a sequential improvement from the 5% decline in our fiscal first quarter. North America's segment adjusted EBITDA increased 7% to $321 million. The carryover benefit of pricing actions and favorable mix more than offset a $63 million charge for the write-off of excess raw potatoes, higher costs per pound and the impact of lower volumes.
Sales in our International segment, which includes sales to customers in all channels outside of North America, grew about $350 million, of which $376 million were incremental sales from the EMEA acquisition. Excluding the EMEA acquisition, net sales declined 12%. Price/mix was up 10%, driven primarily by the carryover benefit of pricing actions taken last year, discrete pricing actions taken this year, and favorable mix. Sales volumes fell 22%, primarily reflecting the carryover impact of exiting the lower margin business during the second half of fiscal 2023.
International segment adjusted EBITDA increased 66% to $100 million, with incremental earnings from the consolidation of EMEA's financial results driving the increase. Excluding the EMEA acquisition, higher cost per pound along with the impact of lower volumes more than offset the favorable price/mix. The higher cost per pound included an $8 million charge allocated to the International segment for the write-off of excess raw potatoes, which was based on the percentage of finished goods shipments to international markets.
Moving to our liquidity position and cash flow, our balance sheet is strong. We ended the quarter with our net debt leverage at 2.4 times adjusted EBITDA, up from 2.3 times at the end of our fiscal first quarter. Our net debt ticked up a couple hundred million dollars to more than $3.5 billion as we drew on our us revolver to largely finance seasonal working capital needs and increase capital expenditures. We also accelerated some payments to suppliers in advance of our ERP system go live at the beginning of the third quarter.
In the first half of the year, we generated $455 million of cash from operations or nearly $170 million more than the first half of last year, largely due to higher earnings. Capital expenditures in the first half were about $565 million, which is up about $300 million from the prior year period, primarily due to construction and equipment purchases as we continue to expand processing capacity in Idaho, Argentina and the Netherlands. As Tom mentioned, we started up our new facility in China a couple months ago.
As we discussed during our Investor Day in October, our first priority is investing in our business, which we are doing organically with our capacity expansions. We also remain committed to returning capital to our shareholders. During the first half of the year, we returned more than $230 of cash to our shareholders, comprised of $82 million in dividends and $150 million in share repurchases. This includes $50 million of stock repurchased in the second quarter at an average price of $87.41 as we acted opportunistically based on our stock price. In addition, in October, we raised our share repurchase authorization to $500 million. And in December, we announced a 29% increase in our quarterly dividend to $0.36 per share.
Turning now to our fiscal 2024 outlook. We reaffirmed our full year sales and EBITDA targets and raised our EPS estimate despite the charge to write off excess raw potatoes. Specifically, we reaffirmed our annual net sales target of $6.8 billion to $7 billion. This includes $1.1 billion to $1.2 billion of incremental sales attributable to the EMEA acquisition during the first three quarters of the year and 6.5% to 8.5% net sales growth, excluding our acquisitions.
For the year, we continue to target price mix to be up low-double digits, with price/mix in the second half slowing sequentially from the 17% increase that we delivered in the first half as we lap more of last year's price actions.
We continue to target our full year volume, excluding acquisitions, to be down mid-single digits compared with the prior year as we maintain our cautious view of the consumer. That said, we expect year-over-year volume trends in each of our segments will continue to improve in the second half of the year as we lap some of the significant low-margin, low-profit volume that we chose to exit in the second half of last year and as we gradually backfill the exited lower margin business with more profitable business. We expect volume growth to be positive in the fourth quarter.
For earnings, we are reaffirming our adjusted EBITDA range to $1.54 billion to 1.62 billion. We are maintaining our EBITDA range target despite absorbing a $71 million charge for the write-off of excess raw potatoes. We are raising our adjusted diluted EPS estimate to $5.70 to $6.15 from our previous range of $5.50 to $5.95. The increase, which also includes the impact of the raw potato write-off, is largely due to two items. First, we are reducing our SG&A target by $20 million to a range of $745 million to $755 million as we continue to manage our operating costs. And second, we are reducing our interest expense target by $15 million to $140 million as we expect to capitalize more interest associated with our capacity expansions.
We are also updating a couple of other financial targets. We reduced our depreciation and amortization expense by $20 million to $305 million. We also increased our capital expenditures target to $900 million to $950 million, up from our previous estimate of $800 million to $900 million to account for the timing of spending for our capacity expansion projects.
Before I turn the call back over to Tom, let me give you a quick update on our ERP implementation. At the beginning of our fiscal third quarter, we transitioned some of our central systems in North America that manage supplier payments, inventories, warehousing, customer invoicing, and customer shipments to SAP. We are experiencing the usual bumps associated with these highly challenging large-scale projects, but don't expect that the cutover will have a material impact on our full year business or operating results.
The estimated financial impact of the systems go live is included in our fiscal 2024 targets, including the impact of pausing production and increasing planned downtime at our processing facilities, followed by a gradual ramp-up of production and reduced shipments due to short-term inventory visibility challenges at our third-party finished goods warehouses in the period immediately following the cutover.
As a result of the increased production downtime, our third quarter gross margin, which is typically our strongest, will be pressured by higher manufacturing costs, reflecting reduced fixed cost coverage and other cost inefficiencies. With respect to sales, we expect the inventory visibility challenges that we experienced at the third-party warehouses to affect shipments and temper the sequential improvement in our third quarter volume trends. But as I mentioned earlier, we continue to expect positive year-over-year volume growth in our fiscal fourth quarter.
I want to thank our customers and our warehousing and logistics service partners for working with us to manage through the transition. And most importantly, I want to thank our Lamb Weston team members that have been working tirelessly on this project, including throughout the holiday season. We will provide a further update on the transition of the central systems and processes, as well as the general timeline for implementing the new ERP system throughout our manufacturing network during our third quarter earnings call in April.
In summary, we delivered another strong quarter of top- and bottom-line growth as we continue to execute our strategies, manage our portfolio mix, and manage costs. We continue to expect volume trends to improve in the second half of the year, while remaining cautious about the effect of inflation on the consumer. And finally, we updated our earnings estimates for the year, including reaffirming our annual EBITDA range, despite absorbing a write-off for excess raw potatoes and raising our annual EPS estimates to reflect lower SG&A and interest expense.
Let me now turn it back over to Tom for some closing comments.
