Lifeway's Earnings Beat by a Nickel


Manufacturer of dairy and non-dairy health food products Lifeway Foods Inc.’s (LWAY) 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 per share.

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 million.

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 year.

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 ingredient.

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 2016.

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. (WEN), The Cheesecake Factory Inc (CAKE) and Burger King Worldwide Inc. (BKW) all carrying a Zacks Rank #2.

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