Lifeway Foods, Inc. Announces Results For The Third Quarter Ended September 30, 2016

MORTON GROVE, Ill., Nov. 09, 2016 (GLOBE NEWSWIRE) -- Lifeway Foods, Inc., (Nasdaq:LWAY), the leading U.S. supplier of kefir cultured dairy products, today reported financial results for the third quarter ended September 30, 2016.

"Our third quarter results reflects our commitment to drive growth and better position Lifeway for future success," said Julie Smolyansky, CEO of Lifeway Foods, Inc. "I am pleased to report that Lifeway's total household penetration is up 28% compared to last year, a strong indication that the strategic marketing and trade investments we have made are attracting a broader consumer base. Today, Lifeway's brand is stronger than ever and we believe there are still tremendous white space opportunities for us to further expand distribution of our diverse portfolio of products across all retail sales channels. Looking forward, we will continue to prioritize our key initiatives to drive sales, improve profitability and create long-term value for our shareholders."

Third Quarter Results

Third quarter of 2016 net sales increased 1.3% to $30.0 million from $29.6 million in the third quarter of 2015 reflecting higher volumes of private label and organic products partially offset by an increased investment in trade programs.

Gross profit as a percent of net sales decreased to 26.6% from 30.2% in the same period last year.  The decrease in gross margin reflects increased trade promotion and unfavorable mix.

Selling expenses increased by $1.6 million to $4.3 million during the third quarter of 2016 from $2.7 million in the third quarter of 2015. The increase in selling expenses reflects an increase in advertising costs associated with a six-week advertising campaign in the third quarter. As a percentage of net sales, selling expenses increased to 14.4% compared to 9.1% in the same period last year.

General and administrative expenses decreased by $0.7 million or 17.3% to $3.3 million reflecting lower professional fees partially offset by higher compensation levels. 

The effective tax rate for third quarter of 2016 exceeded 100% compared to 50.9% in the third quarter of 2015.  The higher tax rate in the third quarter of 2016 reflects the relatively low level of profits in the third quarter of 2016.

Net loss was approximately $64,000, or $0.00 per diluted share for the quarter ended September 30, 2016, compared to net income of $893,000, or $0.05 per diluted share for the quarter ended September 30, 2015.

First Nine Months of Fiscal 2016

Total consolidated net sales increased by $4.6 million, or approximately 5.2%, to $93.7 million during the nine-month period ended September 30, 2016 reflecting volume gains in private label and organic products and lower trade spending compared to last year.

Gross profit as a percent of net sales increased to 28.2% from 26.2% in the same period last year. The increase reflects lower input costs, primarily milk, and lower trade spending. 

Selling expenses increased approximately 24.4% to $10.7 million during the first nine months of 2016 from $8.6 million in the first nine months of 2015, reflecting additional advertising campaigns in the 2016 period. As a percentage of net sales, selling expenses increased to 11.5% compared to 9.7% in the same period last year.

General and administrative expenses decreased by $0.3 million or 3.2% to $10.3 million reflecting lower professional fees partially offset by higher compensation. 

The effective tax benefit for the first nine months of 2016 was 33.0% compared to 50.8% in the same period last year, primarily reflecting the implementation of tax planning strategies in 2016.

Net income was $3.0 million or $0.19 per diluted share for the nine-month period ended September 30, 2016 compared to $1.6 million or $0.10 per diluted share in the same period in 2015.

Balance Sheet

Cash and cash equivalents were approximately $9.2 million as of September 30, 2016 compared to cash and cash equivalents of $5.6 million as of December 31, 2015.

The Company did not repurchase any shares of common stock during the third quarter of 2016. Approximately 1.2 million shares remain available to repurchase under the company's authorized program as of September 30, 2016.  The stock repurchase program has no expiration date and may be suspended or discontinued at any time. 

Conference Call

The Company will host a conference call to discuss these results with additional comments and details on Thursday, November 10, 2016 at 10:00 a.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods' website at www.lifewaykefir.com, and will be archived online. 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, Ed Smolyansky, Chief Operating Officer, and John Waldron, Chief Financial Officer.

About Lifeway Foods

Lifeway Foods, Inc. (LWAY), recently named 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 frozen kefir, specialty cheeses and a ProBugs line for kids. Lifeway's tart and tangy cultured dairy products are available throughout the United States and on a small, but growing basis, in Canada, Latin America and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Find Lifeway Foods, Inc. on Facebook: www.facebook.com/lifewaykefirFollow Lifeway Foods on Twitter: http://twitter.com/lifeway_kefirYouTube: http://www.youtube.com/user/lifewaykefir

Forward-Looking Statements

All statements in this release (and oral statements made regarding the subjects of this release) other than historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and factors, many of which are outside the Company's control, which could cause actual results to differ materially from such statements. Forward-looking statements often address our expected future business and financial performance, and often contain words such as "believe," "expect," "anticipate," "intend," "plan," or "will." By their nature, forward-looking statements address matters that are subject to risks and uncertainties. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements regarding our expectations with regard to any restated amount in our financial statements for the Restated Period or our anticipated financial results for the three months ended March 31, 2016. Factors that could cause or contribute to such differences include: the review of the Company's accounting, accounting policies and internal control over financial reporting; the preparation of and review of the Amended Form 10-Q; and the subsequent discovery of additional adjustments to the Company's previously issued financial statements. Actual events or results may differ materially from the Company's expectations. In addition, our financial results and stock price may suffer as a result of this review and any subsequent determinations from this process or any actions taken by governmental or other regulatory bodies as a result of this process.

These forward-looking statements are also affected by the risk factors, forward-looking statements and challenges and uncertainties described in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and Lifeway's other filings with the SEC, which are available at www.lifewaykefir.com. Except as required by law, the Company expressly disclaims any intention or obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

 
LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2016 and December 31, 2015
(In thousands)
             
    September 30, 2016 (Unaudited)     December 31, 2015  
Current assets            
Cash and cash equivalents   $ 9,164     $ 5,646  
Investments, at fair value           2,216  
Certificates of deposits in financial institutions           513  
Inventories     9,186       7,664  
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,800 at September 30, 2016 and December 31, 2015     10,426       9,604  
Prepaid expenses and other current assets     550       201  
Deferred income taxes     509       556  
Refundable income taxes     521       449  
Total current assets     30,356       26,849  
                 
Property and equipment, net     21,603       21,375  
                 
Intangible assets                
Goodwill & indefinite-lived intangibles     14,068       14,068  
Other intangible assets, net     1,815       2,344  
Total intangible assets     15,883       16,412  
                 
Other Assets     368       282  
Total assets   $ 68,210     $ 64,918  
                 
Current liabilities                
Current maturities of notes payable   $ 840     $ 840  
Accounts payable     8,762       8,393  
Accrued expenses     2,002       1,538  
Accrued income taxes     267       52  
Total current liabilities     11,871       10,823  
                 
Notes payable     6,489       7,119  
                 
Deferred income taxes     2,162       1,719  
Total liabilities     20,522       19,661  
                 
Stockholders' equity                
Common stock, no par value; 40,000 shares authorized;                
17,274, shares issued; 16,141 and 16,210 shares                
outstanding at September 30, 2016 and December 31, 2015 respectively     6,509       6,509  
Paid-in-capital     2,133       2,033  
Treasury stock, at cost     (10,468 )     (9,730 )
Retained earnings     49,514       46,516  
Accumulated other comprehensive income (loss), net of taxes           (71 )
Total stockholders' equity     47,688       45,257  
                 
Total liabilities and stockholders' equity   $ 68,210     $ 64,918  
                 

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
For the Three Months and Nine Months ended September 30, 2016 and 2015
(Unaudited)
(In thousands, except per share data)
                 
      Three Months Ended September 30,       Nine Months Ended September 30,  
              (Revised)               (Revised)  
      2016       2015       2016       2015  
                                     
Net sales     $   29,990       $ 29,599     $ 93,691     $ 89,042  
                                     
Cost of goods sold         21,478         20,049       65,480       63,916  
Depreciation expense         533         614       1,797       1,809  
                                     
Total cost of goods sold         22,011         20,663       67,277       65,725  
                                     
Gross profit         7,979         8,936       26,414       23,317  
                                     
Selling expenses         4,306         2,706       10,733       8,626  
General and administrative         3,308         3,998       10,300       10,643  
Amortization expense         176         179       529       537  
                                     
Total operating expenses         7,790         6,883       21,562       19,806  
                                     
Income from operations         189         2,053       4,852       3,511  
                                     
Other income (expense):                                    
Interest expense         (56 )       (55 )     (161 )     (179 )
Gain / (Loss) on sale of investments, net reclassified from OCI         12         1       (15 )     (21 )
Impairment of investments               (205 )           (385 )
(Loss) / Gain on sale of property and equipment         (156 )             (307 )     243  
Other income (expense), net         28         26       105       173  
Total other income (expense)         (172 )       (233 )     (378 )     (169 )
                                     
Income before provision for income taxes         17         1,820       4,474       3,342  
                                     
Provision for income taxes         81         927       1,476       1,697  
                                     
Net income (loss)     $   (64 )     $ 893     $ 2,998     $ 1,645  
                                     
Basic earnings (loss) per common share     $   (0.00 )     $ 0.05     $ 0.19     $ 0.10  
Diluted earnings (loss) per common share     $   (0.00 )     $ 0.05     $ 0.19     $ 0.10  
                                     
Weighted average number of shares outstanding - Basic         16,141         16,346       16,159       16,346  
Weighted average number of shares outstanding - Diluted         16,161         16,346       16,181       16,346  
                                     
COMPREHENSIVE INCOME (LOSS)                                    
                                     
Net income (loss)     $   (64 )     $ 893     $ 2,998     $ 1,645  
                                     
Other comprehensive income (loss), net of tax:                                    
Unrealized gains (losses) on investments, net of taxes         6         (183 )     62       (247 )
Reclassifications to earnings:                                    
Other than temporary impairment of investments, net of taxes                                    
Realized (gains) losses on investments, net of taxes         (8 )       124       9       247  
                                     
Comprehensive income (loss)     $   (66 )     $ 834     $ 3,069     $ 1,645  
                                       

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2016 and 2015
(Unaudited)
(In thousands)
                 
Cash flows from operating activities:   2016     2015  
Net income   $ 2,998     $ 1,645  
Adjustments to reconcile net income to operating cash flow:                
Depreciation and amortization     2,326       2,346  
Loss on sale of investments, net     15       21  
Impairment of investments           385  
Deferred income taxes     444       (472 )
Reserve for inventory obsolescence     89        
Stock based compensation     100        
Loss (Gain) on sale of property and equipment     307       (243 )
(Increase) decrease in operating assets:                
Accounts receivable     (823 )     (540 )
Inventories     (1,611 )     (1,118 )
Refundable income taxes     (72 )     1,011  
Prepaid expenses and other current assets     (310 )     252  
Increase (decrease) in operating liabilities:                
Accounts payable     370       (396 )
Accrued expenses     465       1,038  
Accrued income taxes     215       449  
Net cash provided by operating activities     4,513       4,378  
                 
Cash flows from investing activities:                
Purchases of investments     (559 )     (1,369 )
Proceeds from sale of investments     2,751       1,230  
Redemption of certificates of deposits     513       250  
Investments in certificates of deposit           (635 )
Purchases of property and equipment     (2,481 )     (1,619 )
Proceeds from sale of property and equipment     149       343  
Net cash provided by (used in) investing activities     373       (1,800 )
                 
Cash flows from financing activities:                
Purchase of treasury stock     (738 )        
Repayment of notes payable     (630 )     (827 )
Net cash used in financing activities     (1,368 )     (827
                 
Net increase in cash and cash equivalents     3,518       1,751  
Cash and cash equivalents at the beginning of the period     5,646       3,260  
Cash and cash equivalents at the end of the period   $ 9,164     $ 5,011  
Supplemental cash flow information:                
Cash paid for income taxes, net of refunds   $ 886     $ 795  
Cash paid for interest   $ 162     $ 178  
                 

 
Contact:Lifeway Foods, Inc.Phone: 877.281.3874Email: info@Lifeway.netInvestor Relations:ICRKatie TurnerHunter Wells646.277.1228

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