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Lifeway Foods Reports Record 3rd Quarter 2009 Revenues and Earnings Results
Date:11/19/2009

- Q3 Gross Profit Increases 77%; Q3 2009 Gross Margins up to 41% from 31% in Q3 2008

- Q3 2009 Operating Income Increases 121% from same period in 2008

- Q3 2009 Pre-tax Income Increases 168% from same period in 2008

MORTON GROVE, Ill., Nov. 16 /PRNewswire-FirstCall/ -- Lifeway Foods, Inc., (Nasdaq: LWAY), makers of the nutritious, probiotic dairy beverage called kefir, announced today for the third quarter ended September 30, 2009, total consolidated group sales increased by $4,193,594, (approximately 37%) to $15,433,876 during the three month period ended September 30, 2009 from $11,240,282 during the same three month period in 2008. This increase is primarily attributable to increased sales and awareness of Lifeway's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids. Additionally, Lifeway recorded revenues from its February 6, 2009 acquisition of Fresh Made Dairy. Included in the total group sales was approximately $2,190,000 of revenue related to this acquisition and recorded during the third quarter of 2009.

Cost of goods sold as a percentage of sales, excluding depreciation was approximately 58% during the third quarter 2009, compared to about 67% during the same period in 2008. The decrease was primarily attributable to the decreased cost of conventional milk, our largest raw material, and the cost of transportation and other petroleum based production supplies. Gross profit increased approximately 77% during the third quarter of 2009, when compared with the same period in 2008.

Operating expenses as a percentage of sales were approximately 20% during the third quarter 2009, compared to about 18% during the same period in 2008. This increase is primarily attributable to a 111% increase in amortization expense, a non cash expense, related to the February 6, 2009 acquisition of Fresh Made Dairy.

Total operating income increased by $1,772,193, (approximately 121%) to $3,239,432 during the third quarter 2009, from $1,467,239 during the same period in 2008.

Total income before taxes increased by $1,884,819 (approximately 168%) to $3,007,652 during the third quarter 2009, from $1,122,833 during the same period in 2008.

Provision for income taxes was $1,636,911, or a 54% tax rate, for the third quarter ended September 30, 2009, compared with a provision for income taxes of $267,917, or a 24% tax rate, for the same period in 2008.

Total net income was $1,370,741 or $.08 per share for the third quarter ended September 30, 2009, compared with $854,916 or $.05 per share in the same period in 2008. This represents a 60% increase in net income from the third quarter 2009 when compared to the same period in 2008.

Nine-Month Period Ended September 30, 2009

Total income before taxes increased by $4,440,498, (approximately 110%) to $8,474,370 during the nine-month period ended September 30, 2009, from $4,033,872 during the same period in 2008.

Provision for income taxes was $3,024,261, or a 36% tax rate, for the nine-month period ended September 30, 2009, compared with a provision for income taxes of $1,378,632, or a 34% tax rate, for the same period in 2008.

Total net income was $5,450,109, or $.32 per share for the nine-month period ended September 30, 2009, compared with $2,655,240, or $.16 per share in the same period in 2008. This represents a 105% increase in net income from the nine-month period ended September 30, 2009 when compared to the same period in 2008.

Net cash provided by operating activities was $5,504,144 during the nine months ended September 30, 2009, which is an increase of $1,872,155 when compared to the same period in 2008.

Edward Smolyansky, CFO commented, "We are extremely pleased at our record third quarter 2009 results. This was again the best quarter in our company's history from both the revenue side as well as the bottom line. Even though the cost of our conventional milk and other raw materials has increased during in the third quarter, our gross margins have remained strong and consistent."

Smolyansky added, "During the fourth quarter, weekly sales volumes continue at a record pace, and existing customers are consistently increasing their orders from previous weeks. Additionally, starting in late December, we will resume shipments to Costco in the Midwest, the first shipments since June 2009. Our cash flows remain very robust, and just this past couple of weeks, we paid down approximately $1.5 million in debt taken out to finance our February 6, 2009 acquisition as well as other current and long term liabilities."


    Lifeway Foods, Inc.
    Phone: 877.281.3874
    Email: info@Lifeway.net
    www.Kefir.com and www.StarfruitCafe.com

    Find Lifeway Foods, Inc. on Facebook: http://www.facebook.com/lifeway.kefir,
    Follow us on Twitter: http://twitter.com/lifeway_kefir and
    http://twitter.com/starfruitcafe
    Flickr: http://www.flickr.com/photos/lifeway_kefir/
    YouTube: http://www.youtube.com/user/lifewaykefir

About Lifeway Foods

Lifeway Foods, Inc., recently named one of Fortune Small Business' Fastest Growing Companies for the 4th consecutive year, is America's leading supplier of the cultured dairy product known as Kefir, and America's sole supplier of Organic Kefir. Lifeway Kefir is a dairy beverage that contains 10 exclusive live and active probiotic cultures. While most regular yogurt contains only two or three of these "friendly" cultures, Lifeway Kefir products offer even more nutritional benefits. Lifeway produces 12 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 products called ProBugs (TM) with a no-spill pouch and kid-friendly flavors like Orange Creamy Crawler, Goo Berry Pie, and Sublime Slime Lime. In addition to its line of Kefir products, the company produces a variety of probiotic cheese products, and a line of products marketed in US Hispanic communities called La Fruta Drinkable Yogurt (yogurt drinks distinct from Kefir).

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.

                                  (Unaudited)             (Unaudited)
                               Three Months Ended      Nine Months Ended
                                 September 30,            September 30,
                                 -------------            -------------
                               2009         2008        2009          2008
                               ----         ----        ----          ----


    Sales                  $15,433,876  $11,240,282  $43,649,383  $33,885,912

    Cost of goods sold       8,892,088    7,505,794   24,994,778   22,403,574
    Depreciation expense       288,613      197,366      859,044      581,920
                               -------      -------      -------      -------

    Total cost of goods
     sold                    9,180,701    7,703,160   25,853,822   22,985,494
                             ---------    ---------   ----------   ----------

    Gross profit             6,253,175    3,537,122   17,795,561   10,900,418

    Selling Expenses         1,231,216      957,978    3,176,162    3,171,269
    General and
     Administrative          1,613,828    1,032,043    5,173,724    3,109,506
    Amortization expense       168,699       79,862      508,086      239,585
                               -------       ------      -------      -------

    Total Operating
     Expenses                3,013,743    2,069,883    8,857,972    6,520,360

    Income from operations   3,239,432    1,467,239    8,937,589    4,380,058

    Other income (expense):
     Interest and dividend
      income                    34,180       95,042      144,899      261,037
     Rental Income              12,047       13,647       33,340       36,940
     Interest expense        ( 99,864)      (71,928)    (364,337)    (226,851)
     Impairment of
      marketable securities        ---     (270,908)         ---     (270,908)
     Loss on Disposition of
      Equipment                    ---          ---       (2,825)
     Gain (loss) on sale of
      marketable securities,
      net                     (178,143)    (110,259)    (274,296)    (146,404)
                              --------     --------     --------     --------
     Total other income
      (Expense)               (231,780)    (344,406)    (463,219)    (346,186)
                              --------     --------     --------     --------

    Income before provision
     for income taxes        3,007,652    1,122,833    8,474,370    4,033,872

    Provision for income
     taxes                   1,636,911      267,917    3,024,261    1,378,632
                             ---------      -------    ---------    ---------

    Net income              $1,370,741     $854,916   $5,450,109   $2,655,240
                            ==========     ========   ==========   ==========

    Basic and diluted earnings
     per common share             0.08         0.05         0.32         0.16
                                  ====         ====         ====         ====

    Weighted average number
     of shares outstanding  16,798,623   16,730,650   16,799,134   16,867,890
                            ==========   ==========   ==========   ==========

    COMPREHENSIVE INCOME
    --------------------

    Net income              $1,370,741     $854,916   $5,450,109   $2,655,240

    Other comprehensive income
     (loss), net of tax:
     Unrealized gains (losses)
      on marketable securities
      (net of tax benefits)    114,628     (480,045)     326,060     (895,641)
     Less reclassification
      adjustment for (gains)
      losses included in net
      income (net of taxes)    104,609       64,746      161,071       85,963
                               -------       ------      -------       ------

    Comprehensive income    $1,589,978     $439,617   $5,937,240   $1,845,562
                            ==========     ========   ==========   ==========


                                                (Unaudited)
                                             Nine Months Ended
                                          September   September    December
                                              30,         30,         31,
                                          ---------   ---------    --------
                                              2009        2008        2008
                                              ----        ----        ----
    Cash flows from operating activities:
    -------------------------------------
      Net income                          $5,450,109  $2,655,240  $1,912,275
      Adjustments to reconcile net income
       to net cash flows from operating
       activities, net of acquisition:
          Depreciation and amortization    1,367,130     821,505   1,092,995
          (Gain)Loss on sale of
           marketable securities, net        274,296     146,404     733,647
          Loss on disposition of assets        2,825           -           -
          Impairment of marketable
           securities                              -     270,908     958,879
          Deferred income taxes              236,063    (125,221)   (509,386)
          Treasury stock issued for
           compensation                      113,476      65,809      96,968
          Increase (decrease) in
           allowance for doubtful accounts         -      (4,449)     70,551
          (Increase) decrease in operating
           assets:
            Accounts receivable           (2,000,033)   (947,303)   (626,754)
            Other receivables                  2,599      14,193       2,797
            Inventories                     (636,236)   (700,540)    409,012
            Refundable income taxes          807,067     240,880    (115,536)
            Prepaid expenses and other
             current assets                    4,661         665      (1,973)
          Increase (decrease) in operating
           liabilities:
            Accounts payable                (284,927)    766,988     665,942
            Accrued expenses                 167,114     118,650      44,243
            Accrued income taxes                   -     308,260           -
                                                 ---     -------         ---
    Net cash provided by operating
     activities                            5,504,144   3,631,989   4,733,660

    Cash flows from investing activities:
    -------------------------------------
      Purchases of marketable securities  (6,050,202) (4,864,873) (5,782,452)
      Sale of marketable securities        6,792,962   4,659,350   5,323,423
      Increase in margin                           -     428,951           -
      Purchases of property and equipment (1,020,776) (1,892,472) (2,157,315)
      Acquisition of Fresh Made, net of
       cash acquired                      (3,442,546)          -           -
                                          ----------         ---         ---
    Net cash used in investing activities (3,720,562) (1,669,044) (2,616,344)

    Cash flows from financing activities:
    -------------------------------------
      Proceeds of note payable             1,753,504           -           -
      Purchases of treasury stock, net      (905,607) (1,139,987) (1,239,488)
      Repayment of notes payable          (2,104,340)   (887,977) (1,196,465)
                                          ----------    --------  ----------
    Net cash provided (used) in
     financing activities                 (1,256,443) (2,027,964) (2,435,953)
                                          ----------  ----------  ----------

    Net increase (decrease) in cash and
     cash equivalents                        527,139     (65,019)   (318,637)

    Cash and cash equivalents at the
     beginning of the period                 277,248     595,885     595,885
                                             -------     -------     -------

    Cash and cash equivalents at the end
     of the period                          $804,387    $530,866    $277,248
                                            ========    ========    ========

SOURCE Lifeway Foods, Inc.


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SOURCE Lifeway Foods, Inc.
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