First quarter of 2011 sales increased 19% to $19.0 million compared to $16.0 million for the first quarter of 2010. This increase is primarily attributable to increased sales and growing awareness of benefits of Lifeway's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids, and the successful introduction of new product lines such as Bio Kefir™. In the first quarter of 2011 the Company had one less Friday based on the Thursday calendar end date of the March 31, 2011 quarter compared to the same period in 2010, which had a full thirteen ship weeks. The Company ships 60 to 70% of their weekly product shipments on the Friday of each week and records revenue based on ship date.
Gross profit for the first quarter of 2011 increased 14% to $7.3 million, compared to $6.4 million in the first quarter of the prior year. The Company's gross profit margin decreased 100 basis points to 42% in the first quarter versus 43% in the first quarter of 2010. Gross profit was impacted by increased prices of transportation and other petroleum based production supplies, partially offset by the decreased price of conventional milk, the Company's largest raw material. The cost of milk was approximately 5% lower in the first quarter of 2011 compared to the same period in 2010. Beginning January 1, 2011, the USDA reclassified Kefir drinks as a class 2 product, and therefore the milk used to produce Kefir historically carried approximately a 10% lower price per pound compared to the existing Class 1 fluid milk level.
Operating expenses as a percentage of net sales were approximately 23.2% during the first quarter of 2011 compared to approximately 24.6% during the same period in 2010. Advertising costs were approximately $4.0 million during the first quarter of 2011 compared to approximately $3.1 million for the same period in 2010.The Company continues to expect advertising expense to be approximately 9- 10% of sales in coming quarters as they increase their marketing initiatives.
Operating income increased 19% to $3.3 million in the first quarter of 2011 compared to $2.7 million in the same period last year. As a percent of net sales operating income increased 40 basis points to 18.9% compared to 18.5% in the first quarter of 2010.
Total income before taxes increased by $539,551, or approximately 20%, to $3.2 million during the first quarter of 2011 from$2.7 million during the same period in 2010.
Provision for income taxes was $1.3 million or a 40% effective tax rate during the first quarter in 2011 compared to $0.9 millionor a 34% effective tax rate during the same period in 2010.
The Company reported net income of $1.9 million or earnings of $0.12 per diluted share compared to net income of $1.8 million or earnings of $0.11 per diluted share in the first quarter of 2010.
Net cash provided by operating activities was $1.2 million during the three months ended March 31, 2011 which is an increase of $54,854 when compared to the same period in 2010. This increase is primarily attributable to a decrease in deferred income taxes and accounts receivable.
The Company had a net increase in cash and cash equivalents of $1.4 million during the first quarter of 2011 compared to the same period in 2010. The Company had cash and cash equivalents of $2.1 million as of March 31, 2011 compared with cash and cash equivalents of $0.7 million as of March 31, 2010.
Julie Smolyansky, CEO of Lifeway Foods, Inc. commented, "We are extremely pleased with Kefir's expanding consumer awareness as our increased marketing initiatives enabled us to report accelerated sales growth of 20% in the first quarter of 2011. As we celebrate our 25th anniversary we believe Lifeway is well positioned to see tremendous future growth opportunities."
Smolyansky continued, "We are excited about our new Lifeway Frozen Kefir which began shipping in mid April and will result in incremental sales growth. Going forward, we continue to expect 2011 to be a year of record sales and profitability."
For more information about Lifeway Kefir, please visit http://www.lifewaykefir.com.
About Lifeway Food
Lifeway Foods, Inc. (NASDAQ: LWAY), recently named one of Fortune Small Business' Fastest Growing Companies for the fifth consecutive year, is America's leading supplier of the cultured dairy products known as kefir and organic kefir. Lifeway Kefir is a dairy beverage that contains 10 exclusive live and active probiotic cultures plus ProBoost™. While most regular yogurt contains only two or three of these "friendly" cultures, Lifeway Kefir products offer greater nutritional benefits and support a healthier life. Lifeway produces various 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 called ProBugs™ with a no-spill pouch and kid-friendly flavors like Goo Berry Pie and Strawnana Split. In addition to its line of Kefir products, the company produces a variety of probiotic cheese products. Lifeway also sells frozen kefir, kefir smoothies and kefir parfaits through its Starfruit™ retail stores.