Lifeway Beats, Initiates Dividend - Analyst Blog
May 16 2012 - 4:30AM
Zacks
Lifeway Foods
Inc.(LWAY) posted earnings of 7 cents per share in the
first quarter of 2012, edging out the Zacks Consensus Estimate by a
penny, but lagging the year-ago quarter earnings of 12 cents per
share. The better-than-expected results were attributable to
double-digit top-line growth.
Lifeway Foods primarily engages in
manufacturing dairy and non-dairy health food products. The company
reported gross sales of $21.6 million in the quarter, up 13.0% year
over year. The upside in revenue was attributable to higher sales
and increased customer acceptance for its flagship product Kefir as
well as other product lines including Bio Kefir and ProBugs organic
Kefir for kids.
During the quarter, gross profit
slipped 11% year over year to $6.8 million and gross margin
contracted 800 basis points (bps) to 35%, attributed to a 30% surge
in transportation cost arising from higher fuel prices and freight
expense and a 20% hike in the cost of milk, the most crucial
ingredient for the company.
Operating expense jumped 13% year
over year to $4.9 million during the quarter, due to higher
selling, general and administrative expenses particularly related
to increased investment in marketing and advertising for brand
awareness. The upside was partially offset by dip in amortization
expense.
Operating income of the company
fell 43% to $1.9 million due to an upside in operating expenses and
drop in gross margin.
The company recently inked a deal
with Target to triple the distribution of its kefir line in Target
stores as well as add new Lifeway products to Target's dairy
cases.
Financial
Position
As of March 31, 2012, Lifeway Foods
had cash and cash equivalents of $0.8 million versus $1.1 million
at December 31, 2012. During the quarter, net cash provided by
operating activities was up $0.4 million to $1.5 million and
shareholders’ equity increased $1.6 million to $36.3
million.
The Morton Grove, Illinois-based
company also remains focused on boosting shareholder value. Lifeway
has initiated an annual cash dividend of 7 cents per share, payable
on June 29, 2012 to shareholders of record as of May 30, 2012.
Our Take
Morton Grove, Illinois-based
Lifeway reported better-than-expected results and continues to
focus on distribution of its Kefir line, which is Lifeway's
flagship product in both domestic and international markets. The
recent agreement with Target is encouraging as the deal will
bolster sales at the retail chain as well as increase awareness
with Target customers. Management remains optimistic for 2012 and
committed to expanding its business and enhancing shareholder
value. The price of milk is also easing out, but higher freight and
fuel costs will continue to be headwind in 2012. Hence, we expect
estimates to go up in the coming days. The Zacks Consensus
Estimates for 2012 and 2013 are pegged at 26 cents and 30 cents a
share, respectively.
Lifeway, which competes with
Dean Foods Co. (DF), currently retains a Zacks #5
Rank, which translates into a short-term Strong Sell rating. We are
also maintaining our long-term Underperform recommendation on the
stock.
DEAN FOODS CO (DF): Free Stock Analysis Report
LIFEWAY FOODS (LWAY): Free Stock Analysis Report
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