Lifeway Foods, Inc. (Nasdaq: LWAY), the leading U.S. supplier of
kefir and fermented probiotic products to support the microbiome,
today reported financial results for fourth quarter and year ended
December 31, 2018.
Julie Smolyansky, Lifeway’s CEO commented, “Our
team continues to work diligently on our strategic long-term plan,
Lifeway 2.0, to reinvigorate growth. We are pleased with the
initial steps we have taken in a very short period of time that are
aligned with our key strategies to expand core kefir product
distribution, build upon our introduction of convenient, on-the-go
health and wellness product innovation, and enhance consumer
experiences to increase Lifeway brand trial, awareness and
consumption. We are also taking decisive actions across our
organization to align our corporate infrastructure with the return
to growth that we aim to achieve over the next several years. While
certain of these efforts resulted in higher expenses late in 2018,
we expect Lifeway to realize greater efficiencies over time. We
believe we are well positioned for growth with our core product
offerings and innovation pipeline, including Plantiful, our new
plant-based probiotic beverage that has created industry
excitement. Our strong manufacturing, sales and marketing
foundation is now set to execute our strategic growth plan and
enhance value for all of our stakeholders.”
Full Year 2018
ResultsNet SalesNet sales were $103.4
million for the year ended December 31, 2018, a decrease of $15.5
million or 13.1% versus the prior year. The decline was primarily
due to volume/mix of 16.6%, partially offset by lower spend in
trade promotion and allowances of 1.7%, and partially offset by
pricing gains of 1.8%. The decline in volume/mix was primarily
driven by volume softness in Lifeway’s branded drinkable and
ProBugs kefir, partially offset by the incremental volume of new
item introductions. The volume decline reflects lower consumption
of the Company’s products that is consistent with the overall
volume decline in dairy and cultured dairy product categories.
Pricing primarily includes the favorable impact of a second quarter
2018 price increase to recover higher input costs. This increase
was partially offset by the lapping of a price reduction driven by
the shift in delivery method for select customers in the first
quarter 2017. The favorable promotional activity reflects lower
trade spending, partially offset by the increased redemptions on
the Company’s 2018 coupon program.
Gross ProfitGross profit as a
percentage of net sales was 25.0% for the year ended December 31,
2018. Gross profit percentage was 25.8% in the prior year. The
decline versus the prior year was primarily due to the unfavorable
impact of operating leverage that arises from lower net sales
relative to fixed costs, increased trade promotion investment, and
higher freight and fixed costs, partially offset by an increase in
pricing and a reduction in variable costs. Additionally,
depreciation expense increased reflecting the continued investment
in manufacturing improvements. The Company incurred $0.1 million of
direct labor severance expense in 2018 to reduce expense and create
efficiencies in the Company’s manufacturing process.
Selling ExpensesSelling
expenses decreased $3.1 million or 18.8% to $13.5 million for the
year ended December 31, 2018. The decrease versus the prior year,
primarily reflects a change in media spending to reduce programs
with lower efficiency. The primary driver was a reduction in
television advertising spend in 2018 compared to the prior year,
and to a lesser extent lower broker commissions and marketing
spending. The reduction was partially offset by severance expense.
The Company incurred $0.3 million of selling severance expense in
2018 to align the organizational structure and reduce expenses.
General and administrative
expensesGeneral and administrative expenses were slightly
lower for the year ended December 31, 2018 finishing at $13.6
million, 2.4% below the prior year. This reflects decreased
incentive compensation and bad debt expense, partially offset by
severance expense. The Company incurred $0.4 million of general and
administrative severance expense in 2018 to align its
organizational structure and reduce expenses. As noted in the
sections above, the Company incurred a total of $0.8 million of
severance expense during fiscal year 2018, primarily in the fourth
quarter.
As noted in the sections above, the Company
incurred a total of $0.8 million of severance expense during fiscal
year 2018, primarily in the fourth quarter.
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Balance
SheetsDecember 31, 2018 and
2017(In thousands)
|
|
December 31, |
|
|
|
2018 |
|
|
2017 |
|
Current
assets |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
2,998 |
|
|
$ |
4,978 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts and allowances of $1,220 and $2,010 at December 31, 2018
and 2017, respectively |
|
|
6,276 |
|
|
|
8,676 |
|
Inventories, net |
|
|
5,817 |
|
|
|
7,697 |
|
Prepaid expenses and other current assets |
|
|
1,077 |
|
|
|
983 |
|
Refundable income taxes |
|
|
2,748 |
|
|
|
2,347 |
|
Total current assets |
|
|
18,916 |
|
|
|
24,681 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
24,573 |
|
|
|
24,645 |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
Goodwill and indefinite-lived intangibles |
|
|
12,824 |
|
|
|
14,068 |
|
Other
intangible assets, net |
|
|
344 |
|
|
|
975 |
|
Total intangible assets |
|
|
13,168 |
|
|
|
15,043 |
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
150 |
|
|
|
150 |
|
Total assets |
|
$ |
56,807 |
|
|
$ |
64,519 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current maturities of notes payable |
|
$ |
– |
|
|
$ |
3,166 |
|
Accounts payable |
|
|
4,570 |
|
|
|
6,848 |
|
Accrued expenses |
|
|
2,777 |
|
|
|
2,984 |
|
Accrued income taxes |
|
|
106 |
|
|
|
203 |
|
Total current liabilities |
|
|
7,453 |
|
|
|
13,201 |
|
Line of Credit |
|
|
5,995 |
|
|
|
– |
|
Notes payable |
|
|
– |
|
|
|
3,113 |
|
Deferred income taxes, net |
|
|
390 |
|
|
|
840 |
|
Other long-term liabilities |
|
|
564 |
|
|
|
775 |
|
Total liabilities |
|
|
14,402 |
|
|
|
17,929 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,500 shares authorized; no shares
issued or outstanding at 2018 and 2017 |
|
|
– |
|
|
|
– |
|
Common stock, no par
value; 40,000 shares authorized; 17,274 shares issued; 15,814 and
16,008 shares outstanding at 2018 and 2017 |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,303 |
|
|
|
2,244 |
|
Treasury stock, at cost |
|
|
(12,970 |
) |
|
|
(11,812 |
) |
Retained earnings |
|
|
46,563 |
|
|
|
49,649 |
|
Total stockholders’ equity |
|
|
42,405 |
|
|
|
46,590 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
56,807 |
|
|
$ |
64,519 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
OperationsFor the three months and twelve months
ended December 31, 2018 and 2017 (In
thousands, except per share data)
|
|
Three Months Ended December
31, |
|
Twelve months Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
23,032 |
|
|
$ |
26,257 |
|
|
$ |
103,350 |
|
|
$ |
118,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
17,234 |
|
|
|
20,495 |
|
|
|
74,646 |
|
|
|
85,757 |
|
Depreciation
expense |
|
|
703 |
|
|
|
639 |
|
|
|
2,846 |
|
|
|
2,440 |
|
Total cost of goods
sold |
|
|
17,937 |
|
|
|
21,134 |
|
|
|
77,492 |
|
|
|
88,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
5,095 |
|
|
|
5,123 |
|
|
|
25,858 |
|
|
|
30,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
2,940 |
|
|
|
4,947 |
|
|
|
13,477 |
|
|
|
16,595 |
|
General and
administrative |
|
|
3,765 |
|
|
|
3,212 |
|
|
|
13,616 |
|
|
|
13,955 |
|
Goodwill
impairment |
|
|
1,244 |
|
|
|
|
|
|
1,244 |
|
|
|
|
Amortization
expense |
|
|
141 |
|
|
|
168 |
|
|
|
631 |
|
|
|
672 |
|
Total operating
expenses |
|
|
8,090 |
|
|
|
8,327 |
|
|
|
28,968 |
|
|
|
31,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(2,995 |
) |
|
|
(3,204 |
) |
|
|
(3,110 |
) |
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(51 |
) |
|
|
(62 |
) |
|
|
(271 |
) |
|
|
(242 |
) |
Gain (loss) on sale of
property and equipment |
|
|
12 |
|
|
|
1 |
|
|
|
54 |
|
|
|
(38 |
) |
Other income |
|
|
5 |
|
|
|
2 |
|
|
|
16 |
|
|
|
2 |
|
Total other
expense |
|
|
(34 |
) |
|
|
(59 |
) |
|
|
(201 |
) |
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
provision for income taxes |
|
|
(3,029 |
) |
|
|
(3,263 |
) |
|
|
(3,311 |
) |
|
|
(804 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income
taxes |
|
|
(217 |
) |
|
|
(1,514 |
) |
|
|
(225 |
) |
|
|
(458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(2,812 |
) |
|
$ |
(1,749 |
) |
|
$ |
(3,086 |
) |
|
$ |
(346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.18 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.02 |
) |
Diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
15,831 |
|
|
|
16,018 |
|
|
|
15,872 |
|
|
|
16,105 |
|
Diluted |
|
|
16,221 |
|
|
|
16,018 |
|
|
|
16,319 |
|
|
|
16,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
FlowsFor the Years Ended December 31, 2018 and
2017(In thousands)
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,086 |
) |
|
$ |
(346 |
) |
Adjustments to reconcile net loss to operating cash
flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,477 |
|
|
|
3,112 |
|
Non-cash interest expense |
|
|
14 |
|
|
|
– |
|
Bad debt expense |
|
|
21 |
|
|
|
480 |
|
Deferred Revenue |
|
|
(97 |
) |
|
|
– |
|
Reserve for inventory obsolescence |
|
|
558 |
|
|
|
374 |
|
Stock-based compensation |
|
|
802 |
|
|
|
596 |
|
Deferred income taxes |
|
|
(451 |
) |
|
|
(352 |
) |
(Gain) loss on sale of property and equipment |
|
|
(54 |
) |
|
|
38 |
|
Goodwill impairment |
|
|
1,244 |
|
|
|
– |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,379 |
|
|
|
780 |
|
Inventories |
|
|
1,322 |
|
|
|
(29 |
) |
Refundable income taxes |
|
|
(401 |
) |
|
|
(2,038 |
) |
Prepaid expenses and other current assets |
|
|
(78 |
) |
|
|
(197 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(2,278 |
) |
|
|
1,130 |
|
Accrued expenses |
|
|
(858 |
) |
|
|
711 |
|
Accrued income taxes |
|
|
(97 |
) |
|
|
(451 |
) |
Net cash provided by operating activities |
|
|
2,417 |
|
|
|
3,808 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
(500 |
) |
|
|
(25 |
) |
Proceeds from sale of investments |
|
|
500 |
|
|
|
– |
|
Purchases of property and equipment |
|
|
(2,824 |
) |
|
|
(5,341 |
) |
Proceeds from sale of property and equipment |
|
|
104 |
|
|
|
50 |
|
Net cash used in investing activities |
|
|
(2,720 |
) |
|
|
(5,316 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
|
6,050 |
|
|
|
– |
|
Payment of deferred financing costs |
|
|
(69 |
) |
|
|
– |
|
Purchase of treasury stock |
|
|
(1,379 |
) |
|
|
(1,486 |
) |
Repayment of notes payable |
|
|
(6,279 |
) |
|
|
(840 |
) |
Net cash used in financing activities |
|
|
(1,677 |
) |
|
|
(2,326 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,980 |
) |
|
|
(3,834 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the period |
|
|
4,978 |
|
|
|
8,812 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
2,998 |
|
|
$ |
4,978 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds |
|
$ |
723 |
|
|
$ |
2,382 |
|
Cash paid for interest |
|
|
261 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
About Lifeway Foods, Inc.
Lifeway Foods, Inc., which has been recognized as 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 the non-dairy
Plantiful probiotic beverages, cupped kefir and skyr, frozen kefir,
specialty cheeses, probiotic supplements and a ProBugs line for
kids. Lifeway’s tart and tangy fermented dairy and non-dairy
products are now sold across North America, Ireland and the United
Kingdom. Learn how Lifeway is good for more than just you at
www.lifewaykefir.com.
Forward-Looking Statements
All 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 "expand," "build," "enhance," "take,"
"action," "align," "return," "aim, "achieve," "expect," "realize,"
"believe," "position," "grow," and "execute." 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, 2018, 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.
Contact:
Lifeway Foods, Inc.Phone: 847-967-1010Email:
info@lifeway.net
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