Lifeway Foods, Inc. Announces Strong Second Quarter 2020 Results

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Second Quarter Net Sales Increase 8% Year-Over-Year to $25 Million

MORTON GROVE, Ill., Aug. 13, 2020 (GLOBE NEWSWIRE) — 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 second quarter ended June 30, 2020.

“I am pleased to report that our strong business momentum continued in the second quarter of 2020, with an 8% increase in sales compared to the second quarter of 2019,” commented Julie Smolyansky, Lifeway’s President and Chief Executive Officer. “We benefited from robust consumer demand during the quarter both through our retail and e-commerce sales channels. Our team executed incredibly well in a dynamic operating environment, truly demonstrating the strength and resiliency of our organization. We believe research and trends around probiotics, vitamin D and immunity supporting foods continues to attract consumers, particularly in light of the ongoing pandemic. As consumers place greater emphasis on self-care, health and nutrition, Lifeway will be there to meet the demand for natural, probiotic products that taste great and offer a range of benefits. Going forward, we expect to maintain our growth trajectory as we benefit from increases in velocity and distribution, as well as new product innovation.”

Second Quarter Results

Net sales were $25.0 million for the second quarter of 2020, an increase of 8.0% from $23.2 million in the second quarter of 2019.

Gross profit as a percentage of net sales was 27.7% for the second quarter of 2020, an increase of 410 basis points from 23.6% for the first quarter of 2020. Gross profit percentage was 24.0% in prior year period. The increase versus the prior year was primarily due to the impact of favorable milk pricing, partially offset by an increase in salaries associated with hourly commitment award wage premiums implemented during 2020 due to COVID-19. Additionally, depreciation expense increased reflecting our continued investment in manufacturing improvements.

Second quarter of 2020 selling expenses were consistent with the second quarter of 2019 at $2.7 million. Selling expenses as a percentage of net sales were 10.9% during the second quarter compared to 11.6% for the same period in 2019.

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General and administrative expenses decreased $0.5 million or 8.0% to $5.9 million for the first half of 2020 from $6.4 million during the same period in 2019. The decrease is primarily a result of lower compensation expense due to organizational changes made in 2019 and lower incentive compensation, partially offset by increased professional fee expense.

The effective income tax rate for the first half of 2020 was 29.0% compared to (7.2%) in the same period last year. The increase in the effective tax rate was primarily due to non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards, separate state tax rates, and the provision for unrecognized tax benefits. The increase was partially offset by the benefit from a net operating loss carryback provision of the CARES Act which went into effect during the first quarter of fiscal year 2020. Although similar items were reflected in 2019, the percentage effect is substantially different due to the difference in pre-tax income in 2020 compared to the pre-tax loss in 2019.

The Company reported earnings of $0.06 per diluted share for the second quarter of 2020, an increase from earnings of $0.01 per diluted share in the first quarter of 2020, and as compared to a net loss of $0.01 per diluted share, in the second quarter of 2019. 

Conference Call and Webcast

A pre-recorded conference call and webcast with Julie Smolyansky discussing these results with additional comments and details will be available today at approximately 7:00 a.m. ET. The webcast will be available over the Internet through the “Investor Relations” section of the Company’s website at https://lifewaykefir.com/webinars-reports/. An audio replay will be available through August 27, 2020. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671. The passcode is 11141231.

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 cupped kefir and cheese, 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 the United States, Mexico, Ireland and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Forward-Looking Statements

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 “from time to time,” “intend,” “plan,” “ongoing,” “realize,” “should,” “may,” “could,” “believe,” “future,” “depend,” “expect,” “will,” “result,” “can,” “remain,” “assurance,” “subject to,” “require,” “limit,” “impose,” “guarantee,” “restrict,” “continue,” “become,” “likely,” “opportunities,” “effect,” “change,” “estimate,” “continue,” “build,” “future,” “increase,” “drive,” “believe,” “look,” “ahead,” “confident,” “deliver,” “outlook,” “expect,” and “predict.” 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. Forward looking statements are based on management’s beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements due in part to the risks, uncertainties, and assumptions that include: the decisions of consumers, our ability to successfully implement our business strategy, changes in the pricing of commodities, the effects of government regulations, the impact of the COVID-19 outbreak on our business, suppliers, consumers, customers and employees, and disruptions in our supply chain or our manufacturing and distribution capabilities, including those due to cyber security threats and the COVID-19 outbreak. 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, 2019, 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: 847-967-1010
Email: [email protected]

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2020 and December 31, 2019
(In thousands)

    June 30,
2020
(Unaudited)
    December 31,
2019
 
Current assets                
Cash and cash equivalents   $ 4,619     $ 3,836  
Accounts receivable, net of allowance for doubtful accounts and discounts and allowances of $1,300 and $1,100 at June 30, 2020 and December 31, 2019 respectively     7,737       6,692  
Inventories, net     6,653       6,392  
Prepaid expenses and other current assets     1,086       1,598  
Refundable income taxes     615       681  
Total current assets     20,710       19,199  
                 
Property, plant and equipment, net     21,394       22,274  
Operating lease right-of-use asset     431       738  
                 
Intangible assets                
Goodwill and indefinite-lived intangibles     12,824       12,824  
Other intangible assets, net     74       152  
Total intangible assets     12,898       12,976  
                 
Other assets     1,800       1,800  
Total assets   $ 57,233     $ 56,987  
                 
Current liabilities                
Accounts payable   $ 5,108     $ 5,282  
Accrued expenses     3,066       4,087  
Line of credit – current     2,757        
Accrued income taxes     92       154  
Total current liabilities     11,023       9,523  
Line of credit           2,745  
Operating lease liabilities     239       488  
Deferred income taxes, net     1,292       922  
Other long-term liabilities     42       58  
Total liabilities     12,596       13,736  
                 
Commitments and contingencies                
                 
Stockholders’ equity                
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019            
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,592 and 15,710 outstanding at June 30, 2020 and December 31, 2019, respectively     6,509       6,509  
Paid-in capital     2,587       2,380  
Treasury stock, at cost     (12,548 )     (12,601 )
Retained earnings     48,089       46,963  
Total stockholders’ equity     44,637       43,251  
                 
Total liabilities and stockholders’ equity   $ 57,233     $ 56,987  
                 

 LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the six months ended June 30, 2020 and 2019
(Unaudited)
(In thousands, except per share data)

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
Net sales   $ 25,014     $ 23,153     $ 50,402     $ 47,768  
                                 
Cost of goods sold     17,279       16,843       35,903       34,410  
Depreciation expense     807       747       1,574       1,492  
Total cost of goods sold     18,086       17,590       37,477       35,902  
                                 
Gross profit     6,928       5,563       12,925       11,866  
                                 
Selling expenses     2,720       2,691       5,295       5,830  
General and administrative     2,731       2,898       5,876       6,390  
Amortization expense     39       40       78       113  
Total operating expenses     5,490       5,629       11,249       12,333  
                                 
Income (loss) from operations     1,438       (66 )     1,676       (467 )
                                 
Other income (expense):                                
Interest expense     (30 )     (68 )     (69 )     (137 )
Gain on investments     4             4        
(Loss) gain on sale of property and equipment     (33 )     4       (28 )     29  
Other income, net     5       2       2       5  
Total other income (expense)     (54 )     (62 )     (91 )     (103 )
                                 
Income (loss) before provision for income taxes     1,384       (128 )     1,585       (570 )
                                 
Provision (benefit) for income taxes     404       13       459       (41 )
                                 
Net income (loss)   $ 980     $ (141 )   $ 1,126     $ (529 )
                                 
Earnings (loss) per common share:                                
Basic   $ 0.06     $ (0.01 )   $ 0.07     $ (0.03 )
Diluted   $ 0.06     $ (0.01 )   $ 0.07     $ (0.03 )
                                 
Weighted average common shares:                                
Basic     15,560       15,775       15,591       15,771  
Diluted     15,586       15,775       15,607       15,771  
                                 

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

    Six Months Ended June 30,  
    2020     2019  
Cash flows from operating activities:                
Net income (loss)   $ 1,126     $ (529 )
Adjustments to reconcile net income (loss) to operating cash flow:                
Depreciation and amortization     1,652       1,605  
Non-cash interest expense     12       12  
Non-cash rent expense     (38 )      
Bad debt expense     (4 )     3  
Deferred revenue     (48 )     (48 )
Stock-based compensation     232       535  
Deferred income taxes     369        
Loss (gain) on sale of property and equipment     28       (29 )
Reserve for inventory obsolescence           210  
(Increase) decrease in operating assets:                
Accounts receivable     (1,041 )     (1,297 )
Inventories     (262 )     (1,235 )
Refundable income taxes     65       1,470  
Prepaid expenses and other current assets     502       (308 )
Increase (decrease) in operating liabilities:                
Accounts payable     (172 )     888  
Accrued expenses     (448 )     774  
Accrued income taxes     (62 )     (43 )
Net cash provided by operating activities     1,911       2,008  
                 
Cash flows from investing activities:                
Purchases of property and equipment     (728 )     (290 )
Proceeds from sale of property and equipment     5       36  
Purchase of investments           (15 )
Net cash used in investing activities     (723 )     (269 )
                 
Cash flows from financing activities:                
Purchase of treasury stock     (405 )     (385 )
Repayment of line of credit           (1,330 )
Net cash used in financing activities     (405 )     (1,715 )
                 
Net increase in cash and cash equivalents     783       24  
                 
Cash and cash equivalents at the beginning of the period     3,836       2,998  
                 
Cash and cash equivalents at the end of the period   $ 4,619     $ 3,022  
                 
Supplemental cash flow information:                
Cash paid for income taxes, net of (refunds)   $ 82     $ (1,469 )
Cash paid for interest   $ 61     $ 149  
                 
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  
Increase (decrease) in right-of-use assets and operating lease liabilities recognized after ASU 2016-02 transition   $ (58 )   $ 280  
                 
Non-cash financing activities                
Issuance of common stock under equity incentive plans   $ 522     $  
                 

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