Lifeway Foods, Inc. Announces Results for the First Quarter Ended March 31, 2019
May 20 2019 - 6:23PM
Lifeway Foods, Inc. (Nasdaq: LWAY) (“Lifeway” or “the Company”),
the leading U.S. supplier of kefir and fermented probiotic products
to support the microbiome, today reported financial results for the
first quarter ended March 31, 2019.
“We are encouraged with our solid start to
2019,” said Julie Smolyansky, CEO of Lifeway Foods, Inc. “We
believe the sequential improvements in net sales and profitability
from the fourth quarter of 2018 demonstrate the positive effects of
our organizational changes, including key operational efficiencies
to support our new strategic growth initiatives. Looking
ahead, we remain excited about our opportunities to build consumer
awareness of our kefir and fermented probiotic products through
distribution expansion and our robust 2019 product innovation as we
generate further progress across our business.”
First Quarter ResultsNet sales
were $24.6 million for the first quarter of 2019, an increase of
7.0% from $23.0 million in the fourth quarter of 2018 and a
decrease of $4.1 million, or 14.4% versus prior year period.
Gross profit as a percentage of net sales was
25.6% for the first quarter of 2019, an increase of 350 basis
points from 22.1% for the fourth quarter of 2018. Gross profit
percentage was 28.0% in prior year period. The decline versus the
prior year period 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 costs, partially offset by an increase in pricing which
commenced during second quarter 2018, and a reduction in variable
costs. Additionally, depreciation expense increased reflecting the
continued investment in manufacturing improvements.
Selling expenses decreased by $0.9 million or
21.9% to $3.1 million for the first quarter of 2019 from $4.0
million during the same period in 2018. The decrease versus prior
year period, primarily reflects a reduction in advertising and
marketing programs with lower efficiency, and to a lesser extent
compensation savings from organizational changes made in 2018, and
broker commissions. Selling expenses as a percentage of net sales
were 12.8% for the first quarter of 2019 compared to 14.0% for the
same period in 2018.
General and administrative expenses decreased
$0.2 million or 5.7% to $3.5 million for the first quarter of 2019
from $3.7 million during the same period in 2018. The decrease is
primarily a result of lower compensation expense due to
organizational changes made in 2018, and decreased incentive
compensation.
The effective income tax rate for the first
quarter of 2019 was 12.2% compared to 35.1% in the same period last
year. The lower effective tax rate was primarily due to the
separate state tax rates, change in valuation allowance and
non-deductible expense amounts being a higher percentage of pre-tax
income (loss). During the three-month period ended March 31, 2019,
the Company recognized non-deductible compensation expense related
to the 2017 LTIP awards. This resulted in a permanent rate effect
and was considered in the estimated full year tax rate.
The Company reported a net loss of $(0.02) per
diluted share for the first quarter of 2019, an improvement from
the net loss of $(0.17) per diluted share in the fourth quarter of
2018, and as compared to net income of $0.07 million or $0.00 per
diluted share in the first quarter of 2018.
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
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 “believe,” “ahead,”
“remain,” “build,” “generate,” “progress,” “innovate,” and
“continue.” 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
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Balance
SheetsMarch 31, 2019 and December 31,
2018(In thousands)
|
|
March
31, 2019 (Unaudited) |
|
|
December 31, 2018 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,524 |
|
|
$ |
2,998 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts & allowances of $1,220 at March 31, 2019 and December
31, 2018 respectively |
|
|
7,374 |
|
|
|
6,276 |
|
Inventories, net |
|
|
6,514 |
|
|
|
5,817 |
|
Prepaid expenses and other current assets |
|
|
1,123 |
|
|
|
1,077 |
|
Refundable income taxes |
|
|
1,258 |
|
|
|
2,748 |
|
Total current
assets |
|
|
18,793 |
|
|
|
18,916 |
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
23,959 |
|
|
|
24,573 |
|
Operating lease
right-of-use asset |
|
|
1,056 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
|
|
|
Goodwill & indefinite-lived intangibles |
|
|
12,824 |
|
|
|
12,824 |
|
Other intangible assets, net |
|
|
271 |
|
|
|
344 |
|
Total intangible
assets |
|
|
13,095 |
|
|
|
13,168 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
165 |
|
|
|
150 |
|
Total
assets |
|
$ |
57,068 |
|
|
$ |
56,807 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5,601 |
|
|
$ |
4,570 |
|
Accrued expenses |
|
|
3,114 |
|
|
|
2,777 |
|
Accrued income taxes |
|
|
87 |
|
|
|
106 |
|
Total current
liabilities |
|
|
8,802 |
|
|
|
7,453 |
|
Line of
credit |
|
|
4,671 |
|
|
|
5,995 |
|
Operating lease
liabilities |
|
|
611 |
|
|
|
– |
|
Deferred income taxes,
net |
|
|
390 |
|
|
|
390 |
|
Other long-term
liabilities |
|
|
124 |
|
|
|
564 |
|
Total
liabilities |
|
|
14,598 |
|
|
|
14,402 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value;
2,500 shares authorized; no shares issued or outstanding at March
31, 2019 and December 31, 2018, respectively |
|
|
– |
|
|
|
– |
|
Common stock, no par value;
40,000 shares authorized; 17,274 shares issued; 15,773 and 15,814
outstanding at March 31, 2019 and December 31, 2018,
respectively |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,663 |
|
|
|
2,303 |
|
Treasury stock, at cost |
|
|
(12,824 |
) |
|
|
(12,970 |
) |
Retained earnings |
|
|
46,122 |
|
|
|
46,563 |
|
Total stockholders'
equity |
|
|
42,470 |
|
|
|
42,405 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
|
$ |
57,068 |
|
|
$ |
56,807 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
OperationsFor the three months ended March 31,
2019 and 2018(Unaudited)(In
thousands, except per share data)
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
24,615 |
|
|
$ |
28,742 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
17,567 |
|
|
|
20,025 |
|
Depreciation expense |
|
|
745 |
|
|
|
680 |
|
Total cost of goods sold |
|
|
18,312 |
|
|
|
20,705 |
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
6,303 |
|
|
|
8,037 |
|
|
|
|
|
|
|
|
|
|
Selling expense |
|
|
3,139 |
|
|
|
4,018 |
|
General and administrative expense |
|
|
3,492 |
|
|
|
3,705 |
|
Amortization expense |
|
|
73 |
|
|
|
163 |
|
Total operating
expenses |
|
|
6,704 |
|
|
|
7,886 |
|
|
|
|
|
|
|
|
|
|
(Loss) income from
operations |
|
|
(401 |
) |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(69 |
) |
|
|
(63 |
) |
Gain on sale of property equipment |
|
|
25 |
|
|
|
15 |
|
Other income, net |
|
|
3 |
|
|
|
5 |
|
Total other income
(expense) |
|
|
(41 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
(Loss) income before
provision for income taxes |
|
|
(442 |
) |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income
taxes |
|
|
(54 |
) |
|
|
38 |
|
|
|
|
|
|
|
|
|
|
Net (loss)
income |
|
$ |
(388 |
) |
|
$ |
70 |
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per
common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
Diluted |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
15,767 |
|
|
|
15,908 |
|
Diluted |
|
|
15,767 |
|
|
|
16,019 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
FlowsFor the Three Months Ended March 31, 2019 and
2018(Unaudited)(In
thousands)
|
|
2019 |
|
|
2018 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(388 |
) |
|
$ |
70 |
|
Adjustments to reconcile net (loss) income to operating
cash flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
818 |
|
|
|
843 |
|
Bad debt expense |
|
|
– |
|
|
|
20 |
|
Reserve for inventory obsolescence |
|
|
30 |
|
|
|
130 |
|
Stock-based compensation |
|
|
353 |
|
|
|
386 |
|
Non-cash interest expense |
|
|
6 |
|
|
|
– |
|
Deferred revenue |
|
|
(24 |
) |
|
|
(24 |
) |
(Gain) on sale of property and equipment |
|
|
(25 |
) |
|
|
(15 |
) |
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,099 |
) |
|
|
467 |
|
Inventories |
|
|
(727 |
) |
|
|
52 |
|
Refundable income taxes |
|
|
1,490 |
|
|
|
(448 |
) |
Prepaid expenses and other current assets |
|
|
(57 |
) |
|
|
(185 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
1,031 |
|
|
|
288 |
|
Accrued expenses |
|
|
(207 |
) |
|
|
(629 |
) |
Accrued income taxes |
|
|
(19 |
) |
|
|
(102 |
) |
Net cash provided by operating activities |
|
|
1,182 |
|
|
|
853 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(137 |
) |
|
|
(879 |
) |
Proceeds from sale of property and equipment |
|
|
31 |
|
|
|
32 |
|
Purchase of investments |
|
|
(15 |
) |
|
|
– |
|
Net cash used in investing activities |
|
|
(121 |
) |
|
|
(847 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(205 |
) |
|
|
(1,052 |
) |
Repayment of line of credit |
|
|
(1,330 |
) |
|
|
– |
|
Repayment of notes payable |
|
|
– |
|
|
|
(210 |
) |
Net cash used in financing activities |
|
|
(1,535 |
) |
|
|
(1,262 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(474 |
) |
|
|
(1,256 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
2,998 |
|
|
|
4,978 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
2,524 |
|
|
$ |
3,722 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of (refunds) |
|
$ |
(1,525 |
) |
|
$ |
587 |
|
Cash paid for interest |
|
$ |
84 |
|
|
$ |
63 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
Right-of-use assets recognized at ASU 2016-02 transition |
|
$ |
944 |
|
|
$ |
– |
|
Operating lease liability recognized at ASU 2016-02 transition |
|
$ |
997 |
|
|
$ |
– |
|
Right-of-use assets and operating lease liabilities recognized
after ASU 2016-02 transition |
|
$ |
242 |
|
|
$ |
– |
|
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