Lifeway Foods, Inc., a leading supplier of cultured dairy products known as kefir and organic kefir, announced results for the first quarter ended March 31, 2012.
First quarter results
First quarter of 2012 gross sales increased 13 percent to $21.6 million compared to $19.0 million for the first quarter of 2011. This increase is primarily attributable to increased sales and awareness of the Company's flagship line, Kefir, as well as ProBugs Organic Kefir for kids and BioKefir. In addition, Lifeway's Frozen Kefir line, which was launched in April 2011, contributed approximately $0.7 million to sales during the first quarter of 2012.
Total consolidated net sales increased 12 percent or $2.1 million to $19.4 million during the three-month period ended March 31, 2012 from $17.3 million during the same three-month period in 2011. Net sales are recorded as gross sales less promotional activities such as slotting fees paid, couponing, spoilage and promotional allowances as well as early payment terms given to customers.
Gross profit for the first quarter of 2012 decreased 11 percent to $6.8 million, compared to $9.7 million in the first quarter of the prior year. The Company's gross profit margin decreased to 35 percent in the first quarter versus 43 percent in the first quarter of 2011. The decrease was primarily attributable to a 30 percent increase in freight expense and higher fuel costs during the first quarter of 2012 when compared to the same period in 2011 and the increased cost of conventional and organic milk, the Company's largest raw material. The total cost of milk was approximately 20 percent higher during the first quarter 2012 when compared to the same period in 2011.
Total operating expenses increased 13 percent or $0.6 million to $4.9 million during the first quarter of 2012, from $4.3 million during the same period in 2011. This increase was primarily attributable to increased selling expenses of $0.4 million and partially offset by a decrease in amortization expense. This increase is directly attributable to increases in marketing and advertising of the Company's flagship line, Kefir, as well as ProBugs Organic Kefir for kids, BioKefir and Lifeway's Frozen Kefir.
Total operating income decreased 43 percent or $1.4 million to $1.9 million during the first quarter of 2012, from $3.3 million during the same period in 2011. The decrease in operating income is related to the decrease in gross profit and the increased operating expenses previously outlined.
Income tax benefit was $0.8 million for the first quarter of 2012 compared to $1.3 million during the same period in 2011.
Total net income was $1.1 million or $0.07 per diluted share for the three-month period ended March 31, 2012 compared to $1.9 million or $0.12 per diluted share in the same period in 2011.
"We are pleased with our first quarter financial performance, despite the cost headwinds we experienced in the quarter, and believe our sales strong sales momentum will continue in 2012," said Julie Smolyansky, CEO of Lifeway Foods, Inc. "This year, we expect increased distribution of our kefir products with our retail partners. Our recent expansion with Target exhibits the growing healthy living trend, consumers' demand for nutritious products, and retailers increasingly expanding their product offerings to support consumer demand."
Mrs. Smolyansky continued, "Going forward, we are very confident in our business and believe we should begin to realize lower milk prices in the second quarter of 2012. These results, combined with our consistently strong sales increases, should lead to record profitability for the year. Our executive team remains committed to increasing shareholder value through our first annual dividend and share repurchase program."