Lifeway Foods Announces Results for Third Quarter Fiscal 2011 Third Quarter 2011 Net Sales Increase a Record 21% to $17.7 Million

MORTON GROVE, Ill., Nov. 14, 2011 /PRNewswire/ -- Lifeway Foods, Inc., (Nasdaq: LWAY), a leading supplier of cultured dairy products known as kefir and organic kefir, today announced results for three and nine months ended September 30, 2011.  

Third Quarter Results

Third quarter of 2011 gross sales increased 22% to $19.4 million compared to $15.9 million for the third quarter of 2010.  This increase is primarily attributable to increased sales and growing awareness of the benefits of Lifeway's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids, and the successful introduction of new product lines such as Bio Kefir™.  In addition, Lifeway Frozen Kefir contributed approximately $0.3 million in sales during the third quarter of 2011.  The frozen kefir line was launched in April 2011.  

Third quarter total consolidated net sales increased $3.1 million, or approximately 21%, to $17.7 million from $14.6 million in the third quarter of 2010.  Net sales are recorded as gross sales less promotional activities such as slotting fees paid, couponing, spoilage and promotional allowances as well as early payment terms given to customers.

Gross profit for the third quarter of 2011 increased 19% to $6.2 million, compared to $5.3 million in the third quarter of the prior year. The Company's gross profit margin decreased to 35% in the third quarter versus 36% in the third quarter of 2010. Gross profit was impacted primarily by increased transportation and other petroleum based production supply costs, as well as the increased price of conventional milk, the Company's largest raw material.  The cost of milk was approximately 35 to 45% higher in the third quarter of 2011 compared to the same period in 2010.

Operating expenses as a percentage of net sales were approximately 26% during the third quarter of 2011 compared to approximately 23% during the same period in 2010.  This increase was primarily attributable to increased selling expenses as compared to the same period in 2010.  Selling related expenses increased by $0.9 million (approximately 49%) to $2.7 million during the third quarter of 2011, from $1.8 million during the same period in 2010.  This increase is directly attributable to increases in marketing and advertising of the Company's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids, BioKefir™ and Lifeway's Frozen Kefir.

Operating income decreased to $1.6 million in the third quarter of 2011 compared to $1.9 million in the same period last year. The decrease in operating income is due to increased operating expenses in the third quarter of 2010 as compared to the third quarter of 2011.

The Company reported net income of $1.0 million or earnings of $0.06 per diluted share compared to net income of $0.9 million or earnings of $0.05 per diluted share in the third quarter of 2010.

Julie Smolyansky, CEO of Lifeway Foods, Inc. commented, "We are very pleased with our ability to continue to grow our sales and profits despite facing record high input costs. In the quarter, we further increased our retail distribution and we believe we have the right Kefir product assortment to further expand our customer reach and increase market share long-term."

Smolyansky continued, "We will continue to intently manage the controllable aspects of our business as we realize increased production efficiencies and economies of sales to achieve record annual sales and profits in 2011. Going forward, we intend to take advantage of the opportunity to expand distribution in the U.S. and internationally with Lifeway's market leading position."

Nine Month Results

Total consolidated gross sales increased by $11.0 million, or approximately 23%, to $58.4 million during the nine-month period ended September 30, 2011 from $47.4 million during the same nine-month period in 2010.  This increase is primarily attributable to increased sales and awareness of Lifeway's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids and BioKefir™.  In addition, Lifeway's Frozen Kefir line, which was launched in April 2011, contributed approximately $0.6 million to revenue during the first nine months of 2011.

Total consolidated net sales increased by $9.4 million, or approximately 22%, to $53.2 million during the nine-month period ended September 30, 2011 from $43.8 million during the same nine-month period in 2010.  

Gross profit for the first nine months of 2011 increased 9% to $18.8 million, compared to $17.2 million in the third quarter of the prior year. The Company's gross profit margin decreased to 35% in the first nine months versus 39% in the same period last year. Gross profit was negatively impacted primarily by increased transportation and other petroleum based production supply costs, as well as the increased price of conventional milk, the Company's largest raw material.  The cost of milk was approximately 20 to 25% higher compared to the first nine months of 2010.

Operating expenses as a percentage of net sales were approximately 25% during the nine-month period ended September 30, 2011 compared to approximately 24% during the same period in 2010.  Selling related expenses increased by $2.2 million, or approximately 39%, to $7.8 million during the nine-month period ended June 30, 2011, from $5.6 million during the same period in 2010.  This increase is directly attributable to the Company recording an approximate $0.7 million expense related to its 25th Anniversary Cross Country Mobile tour, which occurred in the second quarter of 2011 and was expensed during the second quarter of 2011.  The Company views this as a non-recurring advertising expense.  The Company also accrued for $0.1 million in bonuses the first six months of 2011 to be paid in the fourth quarter of 2011.  In 2011 the Company records expenses throughout the year for bonuses so the full impact is not taken in fourth quarter alone and rather spread out across each of the four quarters equally.  The Company accrued for all expenses in the fourth quarter last year.

Total net income was $3.2 million or $0.20 per share for the nine-month period ended September 30, 2011 compared to $3.9 million or $0.23 per share in the same period in 2010.

Balance Sheet/Cash Flow Highlights

Net cash provided by operating activities was $2.6 million during the nine-months ended September 30, 2011 which is a decrease of $1.4 million when compared to the same period in 2010. This decrease is primarily attributable to the decrease in net income of $0.6 million.

Net cash used in investing activities was $2.1 million during the nine-months ended September 30, 2011 which is an increase of $1.7 million compared to the same period in 2010. This increase is primarily due to a decrease in proceeds from sale of investments of $1.9 million compared to 2010.

The Company had cash and cash equivalents of $0.9 million as of September 30, 2011 compared to cash and cash equivalents of $0.8 million as of September 30, 2010.

Total stockholder's equity was $35.8 million as of September 30, 2011, which is an increase of $2.2 million when compared to December 31, 2010. This is primarily due the increase in retained earnings of $3.2 million when compared to December 31, 2010. Total stockholder's equity increased by $1.3 million when compared to September 30, 2010. This is primarily due the increase in retained earnings of approximately $3.0 million as of September 30, 2011, when compared to September 30, 2010.

Conference Call

The Company will host a conference call to discuss these results with additional comments and details.

The conference call is scheduled to begin at 5:00 p.m. ET on Monday, November 14, 2011. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods' website at www.lifeway.net, and will be archived online through November 28, 2011.  In addition, listeners may dial 877-407-3982 in North America, and international listeners may dial 201-493-6780. Participants from the Company will be Julie Smolyansky, President and Chief Executive Officer, and Edward Smolyansky, Chief Financial Officer.

For more information about Lifeway Kefir, please visit http://www.lifewaykefir.com.

Find Lifeway Foods, Inc. on Facebook: www.facebook.com/lifewaykefir
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About Lifeway Foods

Lifeway Foods, Inc. (NASDAQ: LWAY), recently named one of Fortune Small Business' Fastest Growing Companies for the fifth consecutive year, is America's leading supplier of the cultured dairy products known as kefir and organic kefir. Lifeway Kefir is a dairy beverage that contains 10 exclusive live and active probiotic cultures plus ProBoost™. While most regular yogurt contains only two or three of these "friendly" cultures, Lifeway Kefir products offer greater nutritional benefits and support a healthier life. Lifeway produces various different flavors of its drinkable Kefir and Organic Kefir beverage, and recently introduced a series of innovative new products such as a children's line of Organic Kefir called ProBugs™ with a no-spill pouch and kid-friendly flavors like Goo Berry Pie and Strawnana Split. In addition to its line of Kefir products, the company produces a variety of probiotic cheese products. Lifeway also sells frozen kefir, kefir smoothies and kefir parfaits through its Starfruit™ retail stores.

Forward Looking Statements

This news release contains forward-looking statements. Investors are cautioned that actual results may differ materially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, competitive pressures and other important factors detailed in the Company's reports filed with the Securities and Exchange Commission.

LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)




(Unaudited)
Three Months Ended


(Unaudited)
Nine Months Ended



September, 30


September, 30



2011


2010


2011


2010


















Sales


$ 19,423,533




15,908,784




58,383,802




$ 47,419,499



Less: discounts and allowances


(  1,721,929)




( 1,315,767)




( 5,180,377)




(  3,651,976)



Net Sales


17,701,604


17,701,604


14,593,017


14,593,017


53,203,425


53,203,425


43,767,523


43,767,523


















Cost of goods sold




11,066,579




8,981,922




33,253,219




25,512,628

Depreciation expense




396,732




349,017




1,163,939




1,033,612


















Total cost of goods sold




11,463,311




9,330,939




34,417,158




26,546,240


















Gross profit




6,238,293




5,262,078




18,786,267




17,221,283


















Selling expenses




2,748,389




1,848,222




7,760,704




5,584,954

General and administrative




1,726,241




1,329,803




4,904,148




4,298,024

Amortization expense




195,958




175,760




587,874




527,280


















Total Operating Expenses




4,670,588




3,353,785




13,252,726




10,410,258


















Income from operations




1,567,705




1,908,293




5,533,541




6,811,025


















Other income (expense):

















Interest and dividend income




14,465




97,697




49,152




205,381

Rental income




4,546




4,050




5,196




8,085

Interest expense




(     61,074)




(     86,167)




(   195,502)




(   262,274)

Gain (loss) on sale of investments, net




(     33,477)




(       1,687)




(     35,533)




53,097

Loss on Disposition of Assets




(     20,135)




---




(     20,135)




---

Total other income (expense)




(     95,675)




13,893




(   196,822)




4,289


















Income before provision for

















  income taxes




1,472,030




1,922,186




5,336,719




6,815,314


















Provision for income taxes




441,989




1,017,349




2,115,365




2,957,285


















Net income




$ 1,030,041




$    904,837




$ 3,221,354




$ 3,858,029


















Basic and diluted earnings

















per common share




0.06




0.05




0.20




0.23


















Weighted average number of

















 shares outstanding




16,428,005




16,625,414




16,450,973




16,695,782


















COMPREHENSIVE INCOME


































Net income




$ 1,030,041




$    904,837




$ 3,221,354




$ 3,858,029


















Other comprehensive income

















(loss), net of tax:

















Unrealized gains on

















investments (net of tax)




(     83,118)




101,334




(     57,263)




91,995

Less reclassification adjustment

















for (gains) losses included in

















net income (net of taxes)




18,914




990




20,076




(     31,168)


















Comprehensive income




$    965,837




$ 1,007,161




$ 3,184,167




$ 3,918,856



LIFEWAY FOODS, INC. AND SUBSIDIARIES

Statement of Cash Flow

For the Nine Months Ended September 30, 2011 and 2010 (Unaudited)




(Unaudited)
September 30,



2011


2010






Cash flows from operating activities:





Net income


$ 3,221,354


$ 3,858,029

Adjustments to reconcile net income to net





cash flows from operating activities, net of acquisition:





Depreciation and amortization


1,751,813


1,560,893

Loss (Gain) on sale of investments, net


35,533


(      53,097)

Loss on sale of equipment


20,135



Deferred income taxes


(    186,677)


(    392,966)

Treasury stock issued for compensation


---


62,318

Increase in allowance for doubtful accounts


80,000


---

(Increase) decrease in operating assets:





Accounts receivable


( 2,649,396)


( 1,795,921)

Other receivables


89,847


(      12,532)

Inventories


( 1,794,552)


( 1,212,177)

Refundable income taxes


906,748


1,308,978

Prepaid expenses and other current assets


71,913


3,577

Increase (decrease) in operating liabilities:





Accounts payable


346,276


(      55,466)

Accrued expenses


348,403


125,638

Income taxes payable


351,107


567,926

Net cash provided by operating activities


2,592,504


3,965,200






Cash flows from investing activities:





Purchases of investments


( 1,806,564)


( 1,809,171)

Proceeds from sale of investments


990,397


2,868,975

Investments in certificates of deposits


(      50,000)


-

Proceeds from redemption of certificates of deposit


---


202,545

Purchases of property and equipment


( 1,241,388)


( 1,681,740)

Acquisition of the assets of First Juice


---


---

Net cash provided by (used in) investing activities


( 2,107,555)


(    419,391)






Cash flows from financing activities:





Proceeds of note payable


1,000,000


250,000

Checks written in excess of bank balances


(    470,223)


659,125

Purchases of treasury stock


( 1,022,429)


( 2,059,911)

Repayment of notes payable


( 2,361,553)


( 2,175,773)

Net cash used in financing activities


( 2,854,205)


( 3,326,559)






Net (decrease) increase in cash and cash equivalents


( 2,369,256)


219,250






Cash and cash equivalents at the beginning of the period


3,229,939


630,407






Cash and cash equivalents at the end of the period


$    860,683


$    849,657



LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statement of Balance Sheets

For the Nine Months Ended September 30, 2011 and 2010 (Unaudited)




(Unaudited)
September 30,



2011


2010

ASSETS










Current assets





Cash and cash equivalents


$      860,683


$      849,657

Investments


1,814,344


3,488,502

Certificates of deposits in financial institutions


300,000


450,000

Inventories


5,779,926


4,509,153

Accounts receivable, net of allowance for doubtful accounts and discounts


9,362,672


7,795,659

Prepaid expenses and other current assets


86,402


37,120

Other receivables


14,833


62,290

Deferred income taxes


458,001


277,393

Refundable income taxes


---


---

Total current assets


18,676,861


17,469,774






Property and equipment, net


15,380,717


14,930,309






Intangible assets





Goodwill and other non amortizable brand assets


14,068,091


13,806,091

Other intangible assets, net of accumulated amortization of
$2,891,982 and $2,125,489 at September 30, 2011 and 2010


5,414,019


5,732,149

Total intangible assets


19,482,110


19,538,240






Other assets


---


500,000






Total assets


$ 53,539,688


$ 52,438,323






LIABILITIES AND STOCKHOLDERS' EQUITY










Current liabilities





Checks written in excess of bank balances


$      870,987


$   1,002,101

Current maturities of notes payable


1,923,436


3,608,978

Accounts payable


4,529,757


2,708,534

Accrued expenses


857,862


739,982

Accrued income taxes


351,107


567,926

Total current liabilities


8,533,149


8,627,521






Notes payable


5,882,691


6,197,778






Deferred income taxes


3,313,092


3,120,432

Total liabilities


17,728,932


17,945,731






Stockholders' equity





Common stock, no par value; 20,000,000 shares authorized; 17,273,776
shares issued; 16,425,809 shares outstanding at September 30, 2011;
17,273,776 shares issued; 16,597,749 shares outstanding at
September 30, 2010


6,509,267


6,509,267

Paid-in-capital


2,032,516


2,018,727

Treasury stock, at cost


(  7,447,975)


(  5,897,308)

Retained earnings


34,797,229


31,811,438

Accumulated other comprehensive income (loss), net of taxes


(       80,281)


50,468

Total stockholders' equity


35,810,756


34,492,592






Total liabilities and stockholders' equity


$ 53,539,688


$ 52,438,323



Contact:

Lifeway Foods, Inc.
Phone: 877.281.3874
Email: info@Lifeway.net

Investor Relations:
ICR
Katie Turner
John Mills
646.277.1228

Press Contact:
SSPR – Erin O'Connor
eoconnor@sspr.com
847.415.9320

SOURCE Lifeway Foods, Inc.



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