LIFEWAY FOODS INC.
LIFEWAY FOODS INC.
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Lifeway Foods, Inc. Announces Results for Fourth Quarter and Year Ended December 31, 2018

  • 19

MORTON GROVE, Ill., April 15, 2019 (GLOBE NEWSWIRE) -- Lifeway Foods, Inc. (Nasdaq: LWAY), the leading U.S. supplier of kefir and fermented probiotic products to support the microbiome, today reported financial results for fourth quarter and year ended December 31, 2018.

Julie Smolyansky, Lifeway’s CEO commented, “Our team continues to work diligently on our strategic long-term plan, Lifeway 2.0, to reinvigorate growth. We are pleased with the initial steps we have taken in a very short period of time that are aligned with our key strategies to expand core kefir product distribution, build upon our introduction of convenient, on-the-go health and wellness product innovation, and enhance consumer experiences to increase Lifeway brand trial, awareness and consumption.  We are also taking decisive actions across our organization to align our corporate infrastructure with the return to growth that we aim to achieve over the next several years. While certain of these efforts resulted in higher expenses late in 2018, we expect Lifeway to realize greater efficiencies over time. We believe we are well positioned for growth with our core product offerings and innovation pipeline, including Plantiful, our new plant-based probiotic beverage that has created industry excitement. Our strong manufacturing, sales and marketing foundation is now set to execute our strategic growth plan and enhance value for all of our stakeholders.”

Full Year 2018 Results
Net Sales
Net sales were $103.4 million for the year ended December 31, 2018, a decrease of $15.5 million or 13.1% versus the prior year. The decline was primarily due to volume/mix of 16.6%, partially offset by lower spend in trade promotion and allowances of 1.7%, and partially offset by pricing gains of 1.8%. The decline in volume/mix was primarily driven by volume softness in Lifeway’s branded drinkable and ProBugs kefir, partially offset by the incremental volume of new item introductions. The volume decline reflects lower consumption of the Company’s products that is consistent with the overall volume decline in dairy and cultured dairy product categories. Pricing primarily includes the favorable impact of a second quarter 2018 price increase to recover higher input costs. This increase was partially offset by the lapping of a price reduction driven by the shift in delivery method for select customers in the first quarter 2017. The favorable promotional activity reflects lower trade spending, partially offset by the increased redemptions on the Company’s 2018 coupon program.

Gross Profit
Gross profit as a percentage of net sales was 25.0% for the year ended December 31, 2018. Gross profit percentage was 25.8% in the prior year. The decline versus the prior year was primarily due to the unfavorable impact of operating leverage that arises from lower net sales relative to fixed costs, increased trade promotion investment, and higher freight and fixed costs, partially offset by an increase in pricing and a reduction in variable costs. Additionally, depreciation expense increased reflecting the continued investment in manufacturing improvements. The Company incurred $0.1 million of direct labor severance expense in 2018 to reduce expense and create efficiencies in the Company’s manufacturing process.

Selling Expenses
Selling expenses decreased $3.1 million or 18.8% to $13.5 million for the year ended December 31, 2018. The decrease versus the prior year, primarily reflects a change in media spending to reduce programs with lower efficiency. The primary driver was a reduction in television advertising spend in 2018 compared to the prior year, and to a lesser extent lower broker commissions and marketing spending. The reduction was partially offset by severance expense. The Company incurred $0.3 million of selling severance expense in 2018 to align the organizational structure and reduce expenses.

General and administrative expenses
General and administrative expenses were slightly lower for the year ended December 31, 2018 finishing at $13.6 million, 2.4% below the prior year. This reflects decreased incentive compensation and bad debt expense, partially offset by severance expense. The Company incurred $0.4 million of general and administrative severance expense in 2018 to align its organizational structure and reduce expenses. As noted in the sections above, the Company incurred a total of $0.8 million of severance expense during fiscal year 2018, primarily in the fourth quarter.

As noted in the sections above, the Company incurred a total of $0.8 million of severance expense during fiscal year 2018, primarily in the fourth quarter.


LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2018 and 2017
(In thousands)

    December 31,  
    2018     2017  
Current assets                
Cash and cash equivalents   $ 2,998     $ 4,978  
Accounts receivable, net of allowance for doubtful accounts and discounts and allowances of $1,220 and $2,010 at December 31, 2018 and 2017, respectively     6,276       8,676  
Inventories, net     5,817       7,697  
Prepaid expenses and other current assets     1,077       983  
Refundable income taxes     2,748       2,347  
Total current assets     18,916       24,681  
                 
Property, plant and equipment, net     24,573       24,645  
                 
Intangible assets                
Goodwill and indefinite-lived intangibles     12,824       14,068  
Other intangible assets, net     344       975  
Total intangible assets     13,168       15,043  
                 
Other Assets     150       150  
Total assets   $ 56,807     $ 64,519  
                 
Current liabilities                
Current maturities of notes payable   $     $ 3,166  
Accounts payable     4,570       6,848  
Accrued expenses     2,777       2,984  
Accrued income taxes     106       203  
Total current liabilities     7,453       13,201  
Line of Credit     5,995        
Notes payable           3,113  
Deferred income taxes, net     390       840  
Other long-term liabilities     564       775  
Total liabilities     14,402       17,929  
                 
Stockholders’ equity                
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at 2018 and 2017            
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,814 and 16,008 shares outstanding at 2018 and 2017     6,509       6,509  
Paid-in capital     2,303       2,244  
Treasury stock, at cost     (12,970 )     (11,812 )
Retained earnings     46,563       49,649  
Total stockholders’ equity     42,405       46,590  
                 
Total liabilities and stockholders’ equity   $ 56,807     $ 64,519  
                 


LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months and twelve months ended December 31, 2018 and 2017
 (In thousands, except per share data)

    Three Months Ended
December 31,
  Twelve months Ended
December 31,
    2018    2017   2018   2017
                   
Net sales   $ 23,032     $  26,257     $ 103,350     $ 118,893  
                           
                           
Cost of goods sold     17,234       20,495       74,646       85,757  
Depreciation expense     703       639       2,846       2,440  
Total cost of goods sold     17,937       21,134       77,492       88,197  
                           
                           
Gross profit     5,095       5,123       25,858       30,696  
                           
                           
Selling expenses     2,940       4,947       13,477       16,595  
General and administrative     3,765       3,212       13,616       13,955  
Goodwill impairment     1,244             1,244        
Amortization expense     141       168       631       672  
Total operating expenses     8,090       8,327       28,968       31,222  
                           
                           
Loss from operations     (2,995 )     (3,204 )     (3,110 )     (526 )
                           
                           
Other income (expense):                          
Interest expense     (51 )     (62 )
    (271 )     (242 )
Gain (loss) on sale of property and equipment     12       1       54       (38 )
Other income     5       2       16       2  
Total other expense     (34 )     (59 )
    (201 )     (278 )
                           
                           
Loss before provision for income taxes     (3,029 )     (3,263 )     (3,311 )
    (804 )
                           
Benefit for income taxes     (217 )     (1,514 )     (225 )     (458 )
                           
                           
Net loss   $ (2,812 )   $ (1,749 )   $ (3,086 )   $ (346 )
                           
                           
Loss per common share:                          
Basic   $ (0.18 )   $ (0.11 )   $ (0.19 )
  $ (0.02 )
Diluted   $ (0.17 )   $ (0.11 )   $ (0.19 )
  $ (0.02 )
                           
Weighted average common shares:                          
Basic     15,831       16,018       15,872       16,105  
Diluted     16,221       16,018       16,319       16,105  
                                 


LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2018 and 2017
(In thousands)

       
    2018     2017  
             
Cash flows from operating activities:                
Net loss   $ (3,086 )   $ (346 )
Adjustments to reconcile net loss to operating cash flow:                
Depreciation and amortization     3,477       3,112  
Non-cash interest expense     14        
Bad debt expense     21       480  
Deferred Revenue     (97 )      
Reserve for inventory obsolescence     558       374  
Stock-based compensation     802       596  
Deferred income taxes     (451 )     (352 )
(Gain) loss on sale of property and equipment     (54 )     38  
Goodwill impairment     1,244        
(Increase) decrease in operating assets:                
Accounts receivable     2,379       780  
Inventories     1,322       (29 )
Refundable income taxes     (401 )     (2,038 )
Prepaid expenses and other current assets     (78 )     (197 )
Increase (decrease) in operating liabilities:                
Accounts payable     (2,278 )     1,130  
Accrued expenses     (858 )     711  
Accrued income taxes     (97 )     (451 )
Net cash provided by operating activities     2,417       3,808  
                 
Cash flows from investing activities:                
Purchases of investments     (500 )     (25 )
Proceeds from sale of investments     500        
Purchases of property and equipment     (2,824 )     (5,341 )
Proceeds from sale of property and equipment     104       50  
Net cash used in investing activities     (2,720 )     (5,316 )
                 
Cash flows from financing activities:                
Borrowings under revolving credit facility     6,050        
Payment of deferred financing costs     (69 )      
Purchase of treasury stock     (1,379 )     (1,486 )
Repayment of notes payable     (6,279 )     (840 )
Net cash used in financing activities     (1,677 )     (2,326 )
                 
Net decrease in cash and cash equivalents     (1,980 )     (3,834 )
                 
Cash and cash equivalents at the beginning of the period     4,978       8,812  
                 
Cash and cash equivalents at the end of the period   $ 2,998     $ 4,978  
                 
Supplemental cash flow information:                
Cash paid for income taxes, net of refunds   $ 723     $ 2,382  
Cash paid for interest     261       241  
                 

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 the non-dairy Plantiful probiotic beverages, cupped kefir and skyr, 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 North America, Ireland and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Forward-Looking Statements

All statements in 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 "expand," "build," "enhance," "take," "action," "align," "return," "aim, "achieve," "expect," "realize," "believe," "position," "grow," and "execute." 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. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from Lifeway’s expectations and projections. These risks, uncertainties, and other factors include: price competition; the decisions of customers or consumers; the actions of competitors; changes in the pricing of commodities; the effects of government regulation; possible delays in the introduction of new products; and customer acceptance of products and services. 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, 2018, 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: info@lifeway.net

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