Lifeway Foods, Inc., (Nasdaq:LWAY), the leading U.S. supplier of
kefir cultured dairy products, today reported financial results for
the fourth quarter and full year ended December 31, 2016.
“We had another exciting year and are pleased
with our 2016 financial results, particularly in light of the
challenging food retail environment. We increased our net
income by 76% year-over-year, largely driven by strong gross profit
growth,” said Julie Smolyansky, CEO of Lifeway Foods, Inc. “We
continue to focus our efforts on strengthening our business through
new product innovation and expanded distribution to both new and
existing customers. We look forward to an outstanding 2017 and
believe we are well-positioned to achieve net sales and earnings
growth through the successful execution of our key
initiatives.”
Fourth Quarter Results
Fourth quarter of 2016 net sales increased 2.2%
to $30.2 million from $29.5 million for the fourth quarter of
2015. Favorable sales volume and product mix contributed to
the net sales increase as well as a lower level of trade promotion
as compared to the prior year.
Gross profit increased $2.0 million to $8.6
million from $6.6 million for the fourth quarter of 2015. Gross
profit as a percent of net sales increased 630 basis points to
28.5% from 22.2% in the same period last year, driven by favorable
milk costs and lower trade promotion. Milk costs were more
than 10% lower in the fourth of 2016 compared to 2015.
Selling expenses increased $0.4 million to $3.7
million during the fourth quarter of 2016 from $3.3 million in the
fourth quarter of 2015, driven by higher marketing costs. As a
percentage of net sales, selling expenses increased to 12.4%
compared to 11.1% in the same period last year.
General and administrative expenses increased
$1.3 million to $3.5 million from $2.2 million. The increase
reflects higher compensation driven by increased incentive
compensation, including stock-based compensation and increased
headcount.
The effective tax rate for the fourth quarter of 2016 was 58.6%
compared to 49.7% in the fourth quarter of 2015. The higher tax
rate in 2016 is driven by certain operating expenses in 2016 that
are not fully deductible for federal income tax purposes.
Net income was approximately $0.5 million, or
$0.03 per diluted share for the quarter ended December 31, 2016,
compared to net income of $0.3 million, or $0.02 per diluted share,
for the quarter ended December 31, 2015.
Fiscal 2016
Net sales for the year ended December 31, 2016
increased $5.3 million, or 4.5%, to $123.9 million. Favorable
sales volume and product mix contributed to the net sales increase
as well as a lower level of trade promotion as compared to the
prior year. Net sales by product category were as follows for the
year ended December 31, 2016 – Drinkable Kefir products 85.6%,
Lifeway cheese products 8.3%, ProBugs Kefir products 5.1%, Frozen
Kefir 1.0%.
Gross profit increased $5.1 million to $35.0
million from $29.9 million for 2015. Gross profit as a percent of
net sales increased 310 basis points to 28.3% from 25.2% in the
prior year driven by lower trade promotion and favorable milk
costs. In the prior year, the Company increased its emphasis on
trade promotion in an effort to drive sales volumes and in 2016 its
trade promotion moderated. Milk costs were approximately 7.0% lower
in 2016 compared to 2015.
Selling expenses increased $2.6 million to $14.5
million in fiscal 2016 from $11.9 million in the prior year
reflecting an increase in advertising costs and higher royalty and
salaries expense. During 2016, the Company ran two substantial
national advertising campaigns compared to one such campaign in
2015, driving the increased advertising costs. Selling expenses as
a percentage of net sales were 11.7% for the year ended December
31, 2016 compared to 10.0% for the same period in 2015.
General and administrative expenses increased
$0.9 million to $13.8 million from $12.9 million for the same
period in 2015. The increase reflects higher compensation driven by
increased incentive compensation, including stock-based
compensation and increased headcount, partially offset by lower
professional fees.
The effective tax rate for fiscal 2016 was 38.3%
compared to 50.6% in the same period in 2015. The lower
effective tax rate for 2016 was primarily driven by the favorable
settlement of uncertain tax positions and a lower amount of
operating expenses in 2016 that were not fully deductible for
federal income tax purposes.
Net income was $3.5 million, or $0.22 per share,
for the year ended December 31, 2016 compared to $2.0 million, or
$0.12 per share, in fiscal 2015.
Balance Sheet
Cash and cash equivalents increased $3.2 million
to $8.8 million as of December 31, 2016 as compared to the prior
year. As of December 31, 2016, the Company had outstanding
borrowings of approximately $7 million, substantially all of which
consists of term loan borrowings. The Company had additional
borrowing capacity of approximately $5 million under its line of
credit, none of which was outstanding as of December 31, 2016.
For the year ended December 31, 2016, the
Company repurchased 69,197 shares of its common stock and it has
approximately 1.2 million shares available for future share
repurchase under its existing share repurchase program. The
share repurchase program has no expiration date and may be
suspended or discontinued at any time.
Recent Product
Introductions
In March, Lifeway Foods introduced several new
products at the 2017 Natural Products Expo West event in Anaheim,
CA. This included the debut of the new Lifeway Elixir beverage
line, an organic, non-dairy probiotic sparkling beverage.
Additionally, Lifeway showcased new individual, on-the-go Kefir and
Farmer Cheese cups; reformulated Organic BioKefir probiotic shots;
Organic Ceremonial Matcha Green Tea kefir; and Women’s Radiant
Health, Traveler’s Defense + Immunity and Balance Gut Health, a
range of probiotic dietary supplements for everyday health.
“As the leading company focused on
better-for-you products, our team consistently explores
opportunities to provide the benefits of probiotics to more
consumers,” said Smolyansky. “This year, our team has truly outdone
itself with our newly expanded range of innovative dairy and
dairy-free products that help support a healthy lifestyle.”
About Lifeway FoodsLifeway
Foods, Inc. (LWAY), recently named one of Forbes’ Best Small
Companies, is America’s leading supplier of the probiotic,
fermented beverage known as kefir. In addition to its line of
drinkable kefir, the company also produces frozen kefir, specialty
cheeses and a ProBugs line for kids. Lifeway’s tart and tangy
cultured dairy products are available throughout the United States
and on a small, but growing basis in Canada, Latin America,
Ireland, and the United Kingdom. Learn how Lifeway is good for more
than just you at www.lifewaykefir.com.
Find Lifeway Foods, Inc. on Facebook:
www.facebook.com/lifewaykefirFollow Lifeway Foods on Twitter:
http://twitter.com/lifeway_kefirYouTube:
http://www.youtube.com/user/lifewaykefir
Forward-Looking StatementsAll
statements in this release (and oral statements made regarding the
subjects of this release) contains “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995
regarding, among other things, future operating and financial
performance, product development, market position, business
strategy and objectives. These statements use words, and variations
of words, such as “will,” “expect,” “next,” “project,” “potential,”
“continue,” “expand,” and “grow.” Other examples of forward looking
statements may include, but are not limited to, (i) statements of
Company plans and objectives, including the introduction of new
products, or estimates or predictions of actions by customers or
suppliers, (ii) statements of future economic performance, and
(III) statements of assumptions underlying other statements and
statements about Lifeway or its business. You are cautioned not to
rely on these forward-looking statements. These statements are
based on current expectations of future events and thus are
inherently subject to uncertainty. If underlying assumptions
prove inaccurate or known or unknown risks or uncertainties
materialize, actual results could vary materially from Lifeway’s
expectations and projections. These risks, uncertainties, and other
factors include: price competition; the decisions of customers or
consumers; the actions of competitors; changes in the pricing of
commodities; the effects of government regulation; possible delays
in the introduction of new products; and customer acceptance of
products and services. A further list and description of these
risks, uncertainties, and other factors can be found in Lifeway’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2016, and the Company’s subsequent filings with the SEC.
Copies of these filings are available online at
https://www.sec.gov, http://lifewaykefir.com/investor-relations/,
or on request from Lifeway. Information in this release is as
of the dates and time periods indicated herein, and Lifeway does
not undertake to update any of the information contained in these
materials, except as required by law. Accordingly, YOU SHOULD
NOT RELY ON THE ACCURACY OF ANY OF THE STATEMENTS OR OTHER
INFORMATION CONTAINED IN ANY ARCHIVED PRESS RELEASE.
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
Consolidated Balance Sheets |
December 31, 2016 and 2015 |
(In thousands) |
|
|
|
|
|
December 31, |
|
2016 |
|
|
2015 |
|
Current
assets |
|
|
|
Cash and
cash equivalents |
8,812 |
|
|
5,646 |
|
Investments, at fair value |
- |
|
|
2,091 |
|
Certificates of deposits in financial institutions |
- |
|
|
513 |
|
Inventories, net |
8,042 |
|
|
7,664 |
|
Accounts
receivable, net of allowance for doubtful accounts and
discounts |
|
|
|
and
allowances of $1,600 and $1,800 at December 31, 2016 and 2015, |
|
|
|
respectively |
9,594 |
|
|
9,886 |
|
Prepaid
expenses and other current assets |
785 |
|
|
201 |
|
Deferred
income taxes |
662 |
|
|
556 |
|
Refundable income taxes |
309 |
|
|
449 |
|
Total current assets |
28,204 |
|
|
27,006 |
|
|
|
|
|
Property, plant and equipment, net |
21,832 |
|
|
21,375 |
|
|
|
|
|
Intangible assets |
|
|
|
Goodwill
and other indefinite lived intangibles |
14,068 |
|
|
14,068 |
|
Other
intangible assets, net |
1,647 |
|
|
2,344 |
|
Total intangible assets |
15,715 |
|
|
16,412 |
|
|
|
|
|
Other Assets |
125 |
|
|
125 |
|
Total
assets |
65,876 |
|
|
64,918 |
|
|
|
|
|
Current
liabilities |
|
|
|
Current
maturities of notes payable |
840 |
|
|
840 |
|
Accounts
payable |
5,718 |
|
|
8,393 |
|
Accrued
expenses |
2,169 |
|
|
1,538 |
|
Accrued
income taxes |
654 |
|
|
52 |
|
Total current liabilities |
9,381 |
|
|
10,823 |
|
|
|
|
|
Notes
payable |
6,279 |
|
|
7,119 |
|
|
|
|
|
Deferred income
taxes |
1,854 |
|
|
1,719 |
|
Total
liabilities |
17,514 |
|
|
19,661 |
|
|
|
|
|
Stockholders'
equity |
|
|
|
Common stock, no par
value; 40,000,000 shares authorized; 17,274 shares |
|
|
|
issued;
16,154 and 16,210 shares outstanding at 2016 and 2015 |
6,509 |
|
|
6,509 |
|
Paid-in-capital |
2,198 |
|
|
2,033 |
|
Treasury
stock, at cost |
(10,340 |
) |
|
(9,730 |
) |
Retained
earnings |
49,995 |
|
|
46,516 |
|
Accumulated other comprehensive loss, net of taxes |
- |
|
|
(71 |
) |
Total stockholders' equity |
48,362 |
|
|
45,257 |
|
|
|
|
|
Total
liabilities and stockholders' equity |
65,876 |
|
|
64,918 |
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
|
Consolidated Statements of Income and
Comprehensive Income |
|
December 31, 2016 and 2015 |
|
(In thousands, except per share
data) |
|
|
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
Net sales |
$ |
123,879 |
|
|
$ |
118,587 |
|
|
|
|
|
|
|
Cost of goods sold |
|
86,524 |
|
|
|
86,292 |
|
|
Depreciation
expense |
|
2,323 |
|
|
|
2,413 |
|
|
Total cost of goods
sold |
|
88,847 |
|
|
|
88,705 |
|
|
|
|
|
|
|
Gross
profit |
|
35,032 |
|
|
|
29,882 |
|
|
|
|
|
|
|
Selling expenses |
|
14,467 |
|
|
|
11,892 |
|
|
General and
administrative |
|
13,783 |
|
|
|
12,871 |
|
|
Amortization
expense |
|
697 |
|
|
|
716 |
|
|
Total operating
expenses |
|
28,947 |
|
|
|
25,479 |
|
|
|
|
|
|
|
Income from operations |
|
6,085 |
|
|
|
4,403 |
|
|
|
|
|
|
|
Other income
(expense): |
|
|
|
|
Interest
expense |
|
(220 |
) |
|
|
(236 |
) |
|
Loss on
sale of investments, net reclassified from OCI |
|
(15 |
) |
|
|
(72 |
) |
|
Gain
(loss) on sale of property and equipment |
|
(284 |
) |
|
|
253 |
|
|
Impairment of investments |
|
- |
|
|
|
(475 |
) |
|
Other
income |
|
71 |
|
|
|
119 |
|
|
Total
other income (expense) |
|
(448 |
) |
|
|
(411 |
) |
|
|
|
|
|
|
Income before
provision for income taxes |
|
5,637 |
|
|
|
3,992 |
|
|
|
|
|
|
|
Provision for income
taxes |
|
2,158 |
|
|
|
2,020 |
|
|
|
|
|
|
|
Net
income |
$ |
3,479 |
|
|
$ |
1,972 |
|
|
|
|
|
|
|
Basic earnings
per common share |
$ |
0.22 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
Diluted
earnings per common share |
$ |
0.22 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
Weighted
average number of shares outstanding - Basic |
|
16,155 |
|
|
|
16,331 |
|
|
|
|
|
|
|
Weighted
average number of shares outstanding - Diluted |
|
16,160 |
|
|
|
16,331 |
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME |
|
|
|
|
Net
income |
$ |
3,479 |
|
|
$ |
1,972 |
|
|
Other comprehensive
income (loss), net of tax: |
|
|
|
|
Unrealized gains
(losses) on investments, net of $38 and $30 of taxes |
|
62 |
|
|
|
(47 |
) |
|
Reclassifications to
earnings: |
|
|
|
|
Other
than temporary impairment of investments, net of $84 of taxes |
|
- |
|
|
|
130 |
|
|
Realized
(gains) losses on investments, net of $6 and ($28) of taxes |
|
9 |
|
|
|
44 |
|
|
Comprehensive
income |
$ |
3,550 |
|
|
$ |
2,099 |
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
Consolidated Statements of Cash
Flows |
For the Years Ended December 31, 2016 and
2015 |
(In thousands) |
|
|
|
|
|
|
2016 |
|
|
|
2015 |
|
Cash flows from
operating activities: |
|
|
|
Net Income |
|
3,479 |
|
|
|
1,972 |
|
Adjustments to reconcile net income to operating cash
flow: |
|
|
|
Depreciation and amortization |
|
3,020 |
|
|
|
3,129 |
|
Loss on
sale of investments, net |
|
15 |
|
|
|
72 |
|
Impairment of investments |
|
- |
|
|
|
475 |
|
Deferred
income taxes |
|
(531 |
) |
|
|
(585 |
) |
Bad debt
expense |
|
- |
|
|
|
73 |
|
Reserve
for inventory obsolescence |
|
200 |
|
|
|
- |
|
Stock-based compensation |
|
326 |
|
|
|
- |
|
(Gain)
Loss on sale of property and equipment |
|
284 |
|
|
|
(253 |
) |
(Increase) decrease in operating assets: |
|
|
|
Accounts
receivable |
|
292 |
|
|
|
507 |
|
Inventories |
|
(579 |
) |
|
|
(1,849 |
) |
Refundable income taxes |
|
140 |
|
|
|
691 |
|
Prepaid
expenses and other current assets |
|
(584 |
) |
|
|
184 |
|
Increase (decrease) in operating liabilities: |
|
|
|
Accounts
payable |
|
(2,673 |
) |
|
|
2,229 |
|
Accrued
expenses |
|
599 |
|
|
|
48 |
|
Income
taxes payable |
|
1,116 |
|
|
|
52 |
|
Net cash
provided by operating activities |
|
5,104 |
|
|
|
6,745 |
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
Purchases of investments |
|
(559 |
) |
|
|
(1,489 |
) |
Proceeds
from sale of investments |
|
2,751 |
|
|
|
1,714 |
|
Redemption of certificates of deposits |
|
513 |
|
|
|
272 |
|
Investment in certificates of deposits |
|
- |
|
|
|
(635 |
) |
Purchases of property and equipment |
|
(3,237 |
) |
|
|
(1,995 |
) |
Proceeds
from sale of property and equipment |
|
172 |
|
|
|
353 |
|
Net cash used
in investing activities |
|
(360 |
) |
|
|
(1,780 |
) |
|
|
|
|
Cash flows from
financing activities: |
|
|
|
Purchase
of treasury stock |
|
(738 |
) |
|
|
(1,542 |
) |
Repayment of notes payable |
|
(840 |
) |
|
|
(1,037 |
) |
Net cash used
in financing activities |
|
(1,578 |
) |
|
|
(2,579 |
) |
|
|
|
|
Net increase in
cash and cash equivalents |
|
3,166 |
|
|
|
2,386 |
|
|
|
|
|
Cash and cash
equivalents at the beginning of the year |
|
5,646 |
|
|
|
3,260 |
|
|
|
|
|
Cash and cash
equivalents at the end of the year |
$ |
8,812 |
|
|
$ |
5,646 |
|
|
|
|
|
Supplemental
cash flow information: |
|
|
|
Cash paid
for income taxes, net of refunds |
$ |
1,421 |
|
|
$ |
1,920 |
|
Cash paid
for interest |
|
220 |
|
|
|
235 |
|
Contact:
Lifeway Foods, Inc.
Phone: 877.281.3874
Email: info@Lifeway.net
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