Lifeway Foods Inc.
) 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
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.
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.
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.
), 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
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