Lifeway Foods, Inc. (Nasdaq:LWAY), the leading U.S. supplier of
kefir cultured dairy products, today reported financial results for
the third quarter ended September 30, 2017.
“Overall, Lifeway performed well in what continues to be a
challenging business climate,” said CEO Julie Smolyansky. “While
sales declined 4% in the quarter, we continue to shape our product
offering responsive to today’s consumer and invest in
organizational capabilities that enable our strategic framework. In
addition to the changes we implemented in our sales organization
earlier in the year, our innovation and commercialization teams
have been delivering new, on-trend solutions both inside and
outside of dairy. As I look forward to 2018 and beyond, I remain
confident that our team will drive profitable growth from both our
flagship drinkable kefir business and our category-expanding
innovation.”
Third Quarter Results
Third quarter net sales decreased by $1,204 or 4.0% to $28,786.
Lower volumes of our branded drinkable kefir were partially offset
by the incremental impact of our new cupped kefir product line, an
increase in the volume of our private label products and lower
trade promotion.
Gross profit as a percent of net sales increased to 27.2% during
the three-month period ended September 30, 2017 from 26.6% during
the same three-month period in 2016. The higher gross profit
percent reflects lower delivery costs and reduced trade promotion
partially offset by the deleveraging impact of lower net sales
relative to fixed costs.
Selling expenses decreased by $296 or 6.9% to $4,010 during the
three-month period ended September 30, 2017 from $4,306 during the
same period in 2016. The decline in selling expenses was driven by
lower advertising costs and partially offset by higher sales
salaries. We lowered our advertising costs through lower production
costs of our Probiotic Billionaire campaign in the third quarter
compared to the production costs of the campaign we ran in the year
ago period. The higher sales salaries reflect our strategic
initiative launched in the first quarter of 2017 to elevate
customer focus and improve selling effectiveness with an augmented
in-house sales team. Selling expenses as a percentage of net
sales were 13.9% for the three-month period ended September 30,
2017 compared to 14.4% for the same period in 2016.
General and administrative expenses decreased $163 or 4.9% to
$3,145 during the three-month period ended September 30, 2017 from
$3,308 during the same period in 2016. The decrease is primarily a
result of lower professional fees.
Our effective tax rate for the three months ended September 30,
2017 was 41.9% compared to an effective tax rate that exceeded 100%
in the same period last year. We reported net income of $243 or
$0.02 per basic and diluted common share for the three-month period
ended September 30, 2017 compared to a net loss of $64 or $0.00 per
basic and diluted common share in the same period in 2016.
First Nine Months of Fiscal 2017
Year to date net sales decreased by $1,055 or 1.1% to $92,636
during the nine-month period ended September 30, 2017 from $93,691
during the same nine-month period in 2016. Lower volumes of
our branded drinkable kefir were partially offset by the
incremental impact of our new cupped kefir product line and an
increase in the volume of our private label products.
Gross profit as a percent of net sales decreased to 27.6% from
28.2% in the same period last year. The lower gross profit
percent reflects higher milk costs and increased trade promotion
partially offset by lower delivery costs.
Selling expenses increased by $915 or 8.5% to $11,648 during the
first nine months of 2017 from $10,733 in the first nine months of
2016 reflecting higher sales salaries partially offset by lower
advertising costs. As a percentage of net sales, selling
expenses increased to 12.6% compared to 11.5% in the same period
last year.
General and administrative expenses increased $443 or 4.3% to
$10,743 during the nine-month period ended September 30, 2017 from
$10,300 during the same period in 2016. The increase reflects
higher compensation expense driven by increased headcount and
incentive compensation partially offset by lower professional
fees.
Our effective tax rate for the nine months ended September 30,
2017 was 42.9% compared to an effective tax rate of 33.0% in the
same period last year. We reported net income of $1,403 or $0.09
per basic and diluted common share for the nine-month period ended
September 30, 2017 compared to net income of $2,998 or $0.19 per
basic and diluted common share in the same period in 2016.
Balance Sheet
Cash and cash equivalents decreased $1.5 million to $7.3 million
during the nine months ended September 30, 2017. As of September
30, 2017, the Company had outstanding borrowings of approximately
$6.5 million, of which $3.3 million becomes due in May of 2018. The
Company had additional borrowing capacity of $5 million under its
line of credit as of September 30, 2017.
Share Repurchase Program
On September 24, 2015, the Company's Board of Directors
authorized a stock repurchase program (the “2015 stock repurchase
program”) under which the Company may, from time to time,
repurchase shares of its common stock for an aggregate purchase
price not to exceed the lesser of $3,500 or 250 shares. On November
1, 2017, the Company’s Board of Directors amended the Company’s
2015 stock repurchase program (the “2017 amendment”), by increasing
the authorization to the lesser of $5,185 or 625 shares, exclusive
of the shares previously authorized under the 2015 stock repurchase
program. The repurchase program does not obligate the Company
to purchase any shares, and the program may be terminated,
suspended, increased, or decreased by the Company’s Board of
Directors in its discretion at any time.
About Lifeway Foods, Inc.
Lifeway 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.
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 “will,” “invest,” “drive,”
“confident,” “forward,” “innovate,” “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.
Contact:
Lifeway Foods, Inc.Phone: 847-967-1010Email:
info@Lifeway.net
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
Consolidated Balance Sheets |
September 30, 2017 and December 31,
2016 |
(In thousands) |
|
|
|
|
|
|
|
September 30, 2017 (Unaudited) |
|
December 31, 2016 |
Current
assets |
|
|
|
Cash and
cash equivalents |
7,264 |
|
|
8,812 |
|
Accounts
receivable, net of allowance for doubtful accounts and |
|
|
|
discounts
and allowances of $1,160 and $1,600 at September 30, 2017 and |
|
|
|
December
31, 2016 respectively |
10,408 |
|
|
9,594 |
|
Inventories, net |
8,050 |
|
|
8,042 |
|
Prepaid
expenses and other current assets |
1,016 |
|
|
785 |
|
Refundable income taxes |
771 |
|
|
309 |
|
Total current assets |
27,509 |
|
|
27,542 |
|
|
|
|
|
Property, plant and equipment, net |
23,888 |
|
|
21,832 |
|
|
|
|
|
Intangible assets |
|
|
|
Goodwill
and other indefinite-lived intangibles |
14,068 |
|
|
14,068 |
|
Other
intangible assets, net |
1,143 |
|
|
1,647 |
|
Total intangible assets |
15,211 |
|
|
15,715 |
|
|
|
|
|
Other Assets |
150 |
|
|
125 |
|
Total
assets |
66,758 |
|
|
65,214 |
|
|
|
|
|
Current
liabilities |
|
|
|
Current
maturities of notes payable |
3,292 |
|
|
840 |
|
Accounts
payable |
7,104 |
|
|
5,718 |
|
Accrued
expenses |
2,866 |
|
|
2,169 |
|
Accrued
income taxes |
74 |
|
|
654 |
|
Total current liabilities |
13,336 |
|
|
9,381 |
|
|
|
|
|
Notes
payable |
3,197 |
|
|
6,279 |
|
Deferred income
taxes, net |
1,192 |
|
|
1,192 |
|
Other long-term
liabilities |
406 |
|
|
- |
|
Total
liabilities |
18,131 |
|
|
16,852 |
|
|
|
|
|
Stockholders'
equity |
|
|
|
Common stock, no par
value; 40,000,000 shares authorized; 17,274 shares |
|
|
|
issued; 16,037
and 16,154 outstanding at September 30, 2017 and |
|
|
|
December 31,
2016, respectively |
6,509 |
|
|
6,509 |
|
Paid-in-capital |
2,247 |
|
|
2,198 |
|
Treasury
stock, at cost |
(11,527 |
) |
|
(10,340 |
) |
Retained
earnings |
51,398 |
|
|
49,995 |
|
Total stockholders' equity |
48,627 |
|
|
48,362 |
|
|
|
|
|
Total
liabilities and stockholders' equity |
66,758 |
|
|
65,214 |
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
|
|
Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) |
|
|
For the three and nine months ended September
30, 2017 and 2016 |
|
|
(Unaudited) |
|
|
(In thousands, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
28,786 |
|
|
$ |
29,990 |
|
|
$ |
92,636 |
|
|
$ |
93,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
20,331 |
|
|
|
21,478 |
|
|
|
65,262 |
|
|
|
65,480 |
|
|
|
Depreciation
expense |
|
618 |
|
|
|
533 |
|
|
|
1,801 |
|
|
|
1,797 |
|
|
|
Total cost of goods
sold |
|
20,949 |
|
|
|
22,011 |
|
|
|
67,063 |
|
|
|
67,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
7,837 |
|
|
|
7,979 |
|
|
|
25,573 |
|
|
|
26,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expense |
|
4,010 |
|
|
|
4,306 |
|
|
|
11,648 |
|
|
|
10,733 |
|
|
|
General and
administrative expense |
|
3,145 |
|
|
|
3,308 |
|
|
|
10,743 |
|
|
|
10,300 |
|
|
|
Amortization
expense |
|
168 |
|
|
|
176 |
|
|
|
504 |
|
|
|
529 |
|
|
|
Total operating
expenses |
|
7,323 |
|
|
|
7,790 |
|
|
|
22,895 |
|
|
|
21,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
514 |
|
|
|
189 |
|
|
|
2,678 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense): |
|
|
|
|
|
|
|
|
|
Interest
expense |
|
(62 |
) |
|
|
(56 |
) |
|
|
(180 |
) |
|
|
(161 |
) |
|
|
Loss on
sale of investments, net reclassified from OCI |
|
- |
|
|
|
12 |
|
|
|
- |
|
|
|
(15 |
) |
|
|
Loss on
sale of equipment |
|
(34 |
) |
|
|
(156 |
) |
|
|
(39 |
) |
|
|
(307 |
) |
|
|
Other
income, net |
|
- |
|
|
|
28 |
|
|
|
- |
|
|
|
105 |
|
|
|
Total
other income (expense) |
|
(96 |
) |
|
|
(172 |
) |
|
|
(219 |
) |
|
|
(378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before
provision for income taxes |
|
418 |
|
|
|
17 |
|
|
|
2,459 |
|
|
|
4,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
175 |
|
|
|
81 |
|
|
|
1,056 |
|
|
|
1,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
$ |
243 |
|
|
$ |
(64 |
) |
|
$ |
1,403 |
|
|
$ |
2,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
common share: |
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.02 |
|
|
$ |
(0.00 |
) |
|
$ |
0.09 |
|
|
$ |
0.19 |
|
|
|
Diluted |
$ |
0.02 |
|
|
$ |
(0.00 |
) |
|
$ |
0.09 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares: |
|
|
|
|
|
|
|
|
|
Basic |
|
16,093 |
|
|
|
16,141 |
|
|
|
16,133 |
|
|
|
16,159 |
|
|
|
Diluted |
|
16,168 |
|
|
|
16,161 |
|
|
|
16,218 |
|
|
|
16,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
Net income
(loss) |
$ |
243 |
|
|
$ |
(64 |
) |
|
$ |
1,403 |
|
|
$ |
2,998 |
|
|
|
Other
comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
Unrealized gains
on investments, net of taxes |
|
- |
|
|
|
6 |
|
|
|
- |
|
|
|
62 |
|
|
|
Reclassifications to earnings: |
|
|
|
|
|
|
|
|
|
Realized (gains)
losses on investments, net of taxes |
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
9 |
|
|
|
Comprehensive
income (loss) |
$ |
243 |
|
|
$ |
(66 |
) |
|
$ |
1,403 |
|
|
$ |
3,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIES |
Consolidated Statements of Cash
Flows |
For the nine months ended September 30, 2017
and 2016 |
(Unaudited) |
(In thousands) |
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
Cash flows from
operating activities: |
|
|
|
Net Income |
|
1,403 |
|
|
|
2,998 |
|
Adjustments to reconcile net income to operating cash
flow: |
|
|
|
Depreciation and amortization |
|
2,305 |
|
|
|
2,326 |
|
Loss on
sale of investments, net |
|
- |
|
|
|
15 |
|
Reserve
for inventory obsolescence |
|
320 |
|
|
|
89 |
|
Stock-based compensation |
|
901 |
|
|
|
100 |
|
Deferred
income taxes |
|
- |
|
|
|
444 |
|
Loss on
sale of property and equipment |
|
39 |
|
|
|
307 |
|
(Increase) decrease in operating assets: |
|
|
|
Accounts
receivable |
|
(814 |
) |
|
|
(823 |
) |
Inventories |
|
(328 |
) |
|
|
(1,611 |
) |
Refundable income taxes |
|
(462 |
) |
|
|
(72 |
) |
Prepaid
expenses and other current assets |
|
(231 |
) |
|
|
(310 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
Accounts
payable |
|
1,384 |
|
|
|
370 |
|
Accrued
expenses |
|
252 |
|
|
|
465 |
|
Accrued
income taxes |
|
(580 |
) |
|
|
215 |
|
Net cash
provided by operating activities |
|
4,189 |
|
|
|
4,513 |
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
Purchases of investments |
|
(25 |
) |
|
|
(559 |
) |
Proceeds
from sale of investments |
|
- |
|
|
|
2,751 |
|
Redemption of certificates of deposits |
|
- |
|
|
|
513 |
|
Purchases of property and equipment |
|
(3,932 |
) |
|
|
(2,481 |
) |
Proceeds
from sale of property and equipment |
|
37 |
|
|
|
149 |
|
Net cash (used
in) provided by investing activities |
|
(3,920 |
) |
|
|
373 |
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
Purchase
of treasury stock |
|
(1,187 |
) |
|
|
(738 |
) |
Repayment of notes payable |
|
(630 |
) |
|
|
(630 |
) |
Net cash used
in financing activities |
|
(1,817 |
) |
|
|
(1,368 |
) |
|
|
|
|
Net (decrease)
increase in cash and cash equivalents |
|
(1,548 |
) |
|
|
3,518 |
|
|
|
|
|
Cash and cash
equivalents at the beginning of the period |
|
8,812 |
|
|
|
5,646 |
|
|
|
|
|
Cash and cash
equivalents at the end of the period |
$ |
7,264 |
|
|
$ |
9,164 |
|
|
|
|
|
Supplemental
cash flow information: |
|
|
|
Cash paid
for income taxes, net of refunds |
$ |
2,098 |
|
|
$ |
886 |
|
Cash paid
for interest |
$ |
180 |
|
|
$ |
162 |
|
|
|
|
|
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