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Lifeway Foods Reports Record 2nd Quarter and First Half 2008 Results

August 14, 2008

MORTON GROVE, Ill., Aug. 14 /PRNewswire-FirstCall/ — Lifeway Foods, Inc., , makers of a nutritious, probiotic dairy beverage called kefir, announced today for the second quarter ended June 30, 2008, sales increased 19% to approximately $11,523,500 from $9,715,000 during the same period a year ago. This increase in sales was driven by another strong sales increase of Lifeway’s kefir and ProBugs(R).

Second quarter 2008 gross profit virtually unchanged to $3,872,569 from $3,829,076 during the same period a year ago. Gross margins were 34% in the second quarter 2008. Operating income was $1,546,161 for the second quarter 2008. Net Income was $911,718 for the second quarter 2008. Earnings per share were $.05 per share for the second quarter 2008

Edward Smolyansky, CFO commented, “We are extremely proud of our second quarter and first half 2008 results. Our margins continue to improve as the cost of our largest raw material, milk, continues to decrease from its record highs set in the fall of 2007. The price of milk in August was the second lowest month in 2008, and we hope the downward trend will persist throughout the remainder of 2008. Even though we have had some relief in the cost of milk, the prices of most of our other production and packaging supplies that are derived from oil continue to rise, as does the cost to deliver our products.”

Smolyansky added, “We intend on using the extra savings derived from these lower raw material prices to increase our marketing and promotional activities and to continue to educate the public as to the benefits of our Kefir. Selling related expenses in the second quarter 2008 increased 26% compared to the same period a year ago and we expect to continue to spend a higher percentage of sales on marketing in the second half of 2008.”

About Lifeway Foods

Lifeway, recently named Fortune Small Business’ 49th Fastest Growing Small Business, is America’s leading supplier of the cultured dairy product known as kefir. Lifeway Kefir is a dairy beverage that contains Lifeway’s exclusive 10 Live and Active probiotic cultures. While most regular yogurt only contains two or three of these “friendly” cultures, Lifeway kefir products offer more nutritional benefits. Lifeway offers 12 different flavors of its Kefir beverage, Organic Kefir and SoyTreat (a soy based kefir). Lifeway recently introduced a series of innovative new products such as pomegranate kefir, Greek-style kefir, a children’s line of organic kefir products called ProBugs (TM) in a no-spill pouch in kid-friendly flavors like Orange Creamy Crawler and Sublime Slime Lime, and a line of organic whole milk kefir. Lifeway also produces a line of products marketed in US Hispanic communities, called La Fruta, Drinkable Yogurt (yogurt drinks distinct from kefir). In addition to its line of Kefir products, the company produces a variety of cheese products and recently introduced a line of organic pudding called It’s Pudding!

Live conference calls will now be on an annual basis to discuss fiscal full year results. For more information, contact Lifeway Foods, Inc. at (847) 967-1010 or e-mail at info@lifeway.netand visit http://www.lifeway.net/ .

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        Six Months Ended                                    June 30,                 June 30,                                 2008        2007         2008        2007    Sales                    $11,523,393  $9,715,262  $22,645,631 $18,737,506   Cost of goods sold         7,455,696   5,699,883    14,897,79  10,984,414   Depreciation expense         195,128     186,303      384,552     351,597   Total cost of goods sold   7,650,824   5,886,186   15,282,311  11,336,011   Gross profit               3,872,569   3,829,076    7,363,300   7,401,495   Selling Expenses           1,154,126     912,262    2,213,292   1,682,343   General and Administrative 1,092,420   1,074,530    2,077,466   1,995,103   Amortization expense          79,862      80,997      159,723     161,272   Total Operating Expenses   2,326,408   2,067,789    4,450,481   3,838,718   Income from operations     1,546,161   1,761,287    2,912,819   3,562,777    Other income (expense):     Interest and dividend      income                     62,862      98,365      165,995     164,164     Rental Income               11,647       9,581       23,294      18,181     Interest expense           (68,969)   (109,283)    (154,924)   (218,812)     Gain (loss) on sale of      marketable securities,      net                       (87,174)    439,586      (36,145)    454,331     Total other income     (Expense)                  (81,634)    438,249       (1,780)    417,864    Income before provision for     income taxes             1,464,527   2,199,536    2,911,039   3,980,641   Provision for income         552,809     803,510    1,110,715   1,449,284   Net income                  $911,718  $1,396,026   $1,800,324  $2,531,357   Basic and diluted    earnings per    common share                   0.05        0.08         0.11        0.15   Weighted average    number of shares    outstanding              16,765,094  16,875,905   16,789,727  16,885,586                                                   (Unaudited)                                             Six Months Ended                                                 June 30,        December 31,                                            2008          2007       2007    Cash flows from operating   activities:     Net income                          $1,800,324   $2,531,357  $3,152,660     Adjustments to reconcile net income      to net cash flows from operating      activities, net of acquisition:       Depreciation and amortization        544,275      512,869   1,049,913       (Gain)Loss on sale of marketable        securities, net                      36,145     (454,331)   (539,739)       Deferred income taxes                (78,035)      (5,303)   (223,717)       Treasury stock issued for        compensation                         34,650        6,930      48,509       Increase (decrease) in        allowance for doubtful accounts      (4,449)     (40,540)    (40,540)       (Increase) decrease in        operating assets:         Accounts receivable               (412,176)    (619,056)   (226,405)         Other receivables                   (6,460)      30,755      27,939         Inventories                       (345,171)    (988,401)   (984,358)         Refundable income taxes            240,880      267,771      26,891         Prepaid expenses and other          current assets                      8,950       (1,224)     (9,270)       Increase (decrease) in        operating liabilities:         Accounts payable                   279,314       64,150     131,316         Accrued expenses                   134,667      (93,352)    (66,062)         Accrued income taxes               395,093       31,802   Net cash provided by operating    activities                            2,628,007    1,243,427   2,347,137    Cash flows from investing activities:     Investment in cost method securities       ---          ---    (500,000)     Purchases of marketable      securities                         (3,490,650)  (3,274,563) (5,744,697)     Sale of marketable securities        3,299,791    3,750,770   7,168,246     Increase in margin                     407,479     Purchases of property and      equipment                          (1,475,280)    (590,096) (1,824,879)     Purchases of organizational costs          ---       (5,858)   Net cash used in investing activities (1,258,660)    (119,747)   (901,330)    Cash flows from financing activities:     Proceeds of note payable                   ---          ---     300,000     Purchases of treasury stock, net    (1,038,723)    (752,603)   (752,603)     Repayment of notes payable            (584,470)    (904,456) (1,945,131)   Net cash used in financing    activities                           (1,623,193)  (1,657,059) (2,397,734)    Net decrease in cash and cash    equivalents                             (253,846)   (533,379)   (951,927)    Cash and cash equivalents at the    beginning of the period                 595,885    1,547,812   1,547,812    Cash and cash equivalents at the    end of the period                      $342,039   $1,014,433    $595,885  

Lifeway Foods, Inc.

CONTACT: Lifeway Foods, Inc., +1-847-967-1010, info@lifeway.net

Web site: http://www.kefir.com/http://www.lifeway.net/




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