Manufacturer of dairy and non-dairy health food products
Lifeway Foods Inc.
) first-quarter 2013 earnings of 14 cents per share doubled year
over year. Earnings per share also comfortably beat the Zacks
Consensus Estimate by a nickel. Sturdy sales, efficient expense
management and lower cost of milk led to 100% growth in earnings
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Gross sales in the quarter surged 28.0% year over year to $27.6
million driven by increased customer acceptance as well as demand
for its flagship product 'Kefir' and other product lines
including Bio Kefir and ProBugs organic Kefir for kids. Gross
sales also came ahead of the Zacks Consensus Estimate of $25
Including discounts and allowances, net sales jumped 26.0% to
$24.4 million. The total allowance for promotions and discounts
in the first quarter of 2013 was about 12% of gross sales
compared with about 10% of gross sales in the same period last
During the quarter, gross profit increased 41% to $8.6 million.
Gross margin expanded 400 basis points (bps) to 35% mainly due to
lower cost of conventional milk, which is Lifeway's key
The total cost of milk was nearly 5% lower on a year-over-year
basis during the quarter. Management expects milk prices to
remain flat in the second quarter, which should benefit gross
profit in the upcoming quarter as well.
Operating expenses as a percentage of net sales were
approximately 20%, down 200 bps year over year, which led to a
360 bps increase in operating margin to 13.4%.
Lifeway strives hard to gain market share within the expanding
health and wellness product category. It continues to
achieve new distribution contracts in the US with new and
existing retailers. It also intends to take kefir probiotic
beyond the dairy aisles to other segments of a store.
Going forward, Lifeway seeks to grow in new markets like the UK
as Europe boasts the biggest market for organic food and
beverages in the world and accounts for almost 50% global sales
of organic products. The market is expected to grow at an
estimated compound annual growth rate (CAGR) of 7.5% from 2012 to
In order to capitalize on the existing opportunities, Lifeway has
made its foray into UK by signing agreements with Harvey Nichols,
a leading retailer in London for some its exclusive brands.
Lifeway currently retains a Zacks Rank #2 (Buy). However, some
players in the restaurant industry look attractive at current
levels. These stocks are
The Wendy's Co.
The Cheesecake Factory Inc
Burger King Worldwide Inc.
) all carrying a Zacks Rank #2.