Lifeway Foods, Inc. 10-K Analysis & Summary – 3/14/2025

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Lifeway Foods, Inc.

10-K

Annual report

Filing date:

03/14/2025

TLDR:

ELI5:

Lifeway, a company that makes kefir, sold more products than ever before, but they also spent more money on things like legal fees and marketing. This means they made less profit overall, even though sales were up.

Accession #:

0001683168-25-001592

Published on

March 16, 2025

Analyst Summary

Lifeway Foods reported a 16.7% increase in net sales, reaching $186.82 million, driven by strong demand for its kefir products.
Gross profit margin decreased slightly from 26.5% to 26.0% due to higher milk prices.
Operating expenses increased significantly, with G&A expenses rising by 48.1% due to legal fees and CEO retention bonus, impacting net income.
Net income decreased by 20.6% to $9.03 million.
The company’s balance sheet shows a strong financial position with increased cash and cash equivalents and stockholders’ equity.
Cash from operating activities decreased by 23.5% due to lower cash earnings and changes in working capital.
The company faces potential distractions from stockholder actions and an unsolicited acquisition proposal from Danone.
Adjusted EBITDA decreased from $21.65 million in 2023 to $19.68 million in 2024.

Opportunities and Risks

Opportunity: New product development and innovation can drive growth.
Opportunity: Expanding distribution channels and entering new markets can increase sales.
Opportunity: Growing consumer interest in health and wellness provides a tailwind for Lifeway’s products.
Opportunity: Investments in manufacturing facilities can improve efficiency and increase production capacity.
Risk: Intense competition in the dairy and probiotic markets could impact sales and profitability.
Risk: Interruptions in the supply chain could affect manufacturing and distribution.
Risk: Potential cybersecurity breaches could disrupt operations and compromise sensitive information.
Risk: Proposals to acquire the Company and potential proxy contests could distract management and increase expenses.
Risk: Fluctuations in milk prices could reduce gross margins.
Risk: Ongoing litigation regarding the Stockholders’ Agreement may be protracted and costly.

Potential Implications

Company Performance

Focus on managing costs, particularly operating expenses, to improve profitability.
Resolve stockholder-related uncertainties to minimize distractions for management.
Capitalize on growth opportunities through product innovation and distribution expansion.
Address customer concentration risk, as two customers account for 25% of net sales.
Maintain a strong balance sheet and liquidity position to support future investments and growth initiatives.

Stock Price

The high P/E ratio of 32.89 suggests the stock may be overvalued compared to industry peers.
The low P/B ratio of 0.32 indicates the stock may be undervalued relative to its book value.
Potential distractions from stockholder actions and an unsolicited acquisition proposal could create uncertainty and volatility in the stock price.
Positive revenue growth and a strong balance sheet could support a positive outlook for the stock price if the company can improve profitability and manage costs effectively.

Lifeway Foods, Inc. (LWAY) – Form 10-K Report for FY 2024

Executive Summary

This report analyzes Lifeway Foods, Inc.’s (LWAY) Form 10-K filing for the fiscal year ended December 31, 2024. Lifeway achieved record net sales, driven by strong demand for its kefir products. However, gross profit margin decreased slightly due to higher milk prices. Increased spending on marketing and administrative expenses impacted net income. The company faces risks related to competition, supply chain disruptions, and potential stockholder actions. Overall, the company shows growth potential but needs to manage costs effectively. A hold rating is suggested, pending further evaluation of cost management strategies and resolution of stockholder-related uncertainties.

Company Overview

Lifeway Foods, Inc. is the largest U.S. producer and marketer of kefir, a cultured dairy product. The company manufactures and markets kefir, European-style cheeses, cream, drinkable yogurt, and other dairy products under the Lifeway, Fresh Made, and GlenOaks Farms brands. The company operates in the probiotic-based and natural foods market. Recent developments include an unsolicited acquisition proposal from Danone, debt refinancing, and expansion of kefir distribution in international markets.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights record net sales driven by drinkable kefir. They acknowledge the impact of commodity inflation and input cost increases but believe cash flow, credit facility, and cash reserves will provide sufficient liquidity. The MD&A discusses the unsolicited proposal from Danone and the Board’s rejection of the offer. It also mentions debt refinancing and new product rollouts. The tone is generally positive, emphasizing growth and strategic initiatives. However, the discussion of stockholder actions and the Danone proposal suggests potential instability and distraction for management.

Financial Statement Analysis

Income Statement

Metric	2024	2023	Change
Net Sales	$186.82M	$160.12M	+16.7%
Gross Profit	$48.57M	$42.44M	+14.4%
Gross Profit Margin	26.0%	26.5%	-0.5%
Selling Expenses	$14.74M	$11.78M	+25.2%
G&A Expenses	$19.44M	$13.13M	+48.1%
Net Income	$9.03M	$11.37M	-20.6%

Key Observations:

Strong revenue growth indicates increasing demand for Lifeway products.
Decreased gross profit margin suggests rising costs are not fully offset by price increases.
Significant increase in G&A expenses, attributed to legal fees and CEO retention bonus, negatively impacted profitability.

Balance Sheet

Metric	2024	2023	Change
Cash and Cash Equivalents	$16.73M	$13.20M	+26.7%
Total Assets	$90.55M	$81.65M	+10.9%
Total Liabilities	$18.64M	$21.22M	-12.2%
Stockholders’ Equity	$71.91M	$60.44M	+19.0%

Key Observations:

Increased cash position provides financial flexibility.
Growth in total assets reflects investments in property, plant, and equipment.
Decreased liabilities due to repayment of debt.
Strong growth in stockholders’ equity indicates improved financial health.

Cash Flow Statement

Metric	2024	2023	Change
Operating Activities	$12.96M	$16.94M	-23.5%
Investing Activities	($6.68M)	($4.41M)	-51.5%
Financing Activities	($2.75M)	($3.78M)	-27.3%

Key Observations:

Decrease in cash from operating activities due to lower cash earnings and changes in working capital.
Increased cash used in investing activities reflects planned capital spending.
Cash used in financing activities represents debt repayments.

Risk and Opportunity Assessment

Risks:

Competition: Intense competition in the dairy and probiotic markets could impact sales and profitability.
Supply Chain Disruptions: Interruptions in the supply chain could affect manufacturing and distribution.
Cybersecurity Threats: Potential cybersecurity breaches could disrupt operations and compromise sensitive information.
Stockholder Actions: Proposals to acquire the Company and potential proxy contests could distract management and increase expenses.
Milk Prices: Fluctuations in milk prices could reduce gross margins.
Litigation: Ongoing litigation regarding the Stockholders’ Agreement may be protracted and costly.

Opportunities:

Product Innovation: New product development and innovation can drive growth.
Distribution Expansion: Expanding distribution channels and entering new markets can increase sales.
Health and Wellness Trends: Growing consumer interest in health and wellness provides a tailwind for Lifeway’s products.
Operational Efficiency: Investments in manufacturing facilities can improve efficiency and increase production capacity.

Uncommon Metrics

Customer Concentration: Two customers accounted for 25% of net sales, indicating a concentration risk.

Conclusion and Actionable Insights

Lifeway Foods, Inc. demonstrates strong revenue growth and a solid balance sheet. However, increased operating expenses and potential distractions from stockholder actions pose challenges. The company should focus on managing costs, resolving stockholder-related uncertainties, and capitalizing on growth opportunities. A hold rating is suggested, pending further evaluation of cost management strategies and resolution of stockholder-related uncertainties.

Financial Analysis of Lifeway Foods, Inc. (LWAY)

1. Commentary

Lifeway Foods experienced a mixed financial performance in 2024. Revenue increased significantly, driven primarily by growth in drinkable kefir sales. However, net income decreased due to a decline in income from operations, despite reduced interest expenses. The company strengthened its balance sheet by eliminating its note payable, but profitability metrics indicate areas for improvement. Overall, Lifeway shows revenue growth potential but needs to focus on operational efficiency to boost profitability.

2. Financial Ratio and Metric Analysis

Profitability

Ratio/Metric	2024	2023	Trend	Industry Comparison
Gross Profit Margin	26.0%	26.5%	-1.89%	Generally, food and beverage companies range from 20% to 40%. Lifeway is on the lower end.
Operating Profit Margin	7.4%	10.6%	-30.19%	Food and beverage companies typically range from 5% to 15%. Lifeway is within range but declining.
Net Profit Margin	4.8%	7.1%	-32.39%	The food industry averages around 5%. Lifeway is slightly below average and declining.
Return on Assets (ROA)	9.97%	13.92%	-28.31%	The food industry averages around 5%. Lifeway is above average but declining.
Return on Equity (ROE)	12.55%	18.81%	-33.28%	The food industry averages around 10%. Lifeway is above average but declining.
EPS (Basic)	$0.61	$0.77	-20.78%	N/A
EPS (Diluted)	$0.60	$0.75	-20.00%	N/A

Liquidity

Ratio/Metric	2024	2023	Trend	Industry Comparison
Current Ratio	2.81	2.30	22.17%	The food industry average is around 1.5 to 2. Lifeway is healthy.
Quick Ratio	2.25	1.75	28.57%	The food industry average is around 0.8 to 1.2. Lifeway is healthy.
Cash Ratio	1.08	0.79	36.71%	The food industry average is around 0.2 to 0.4. Lifeway is very strong.

Solvency/Leverage

Ratio/Metric	2024	2023	Trend	Industry Comparison
Debt-to-Equity Ratio	0.00	0.05	-100.00%	The food industry average is around 0.5 to 1. Lifeway is very low.
Debt-to-Assets Ratio	0.00	0.03	-100.00%	The food industry average is around 0.2 to 0.4. Lifeway is very low.
Interest Coverage Ratio	131.92	44.26	198.10%	The food industry average is around 10 to 20. Lifeway is very strong.

Activity/Efficiency

Ratio/Metric	2024	2023	Trend	Industry Comparison
Inventory Turnover	15.95	12.64	26.19%	The food industry average is around 6 to 8. Lifeway is very efficient.
Days Sales Outstanding (DSO)	30.25	31.68	-4.51%	The food industry average is around 30 to 45. Lifeway is efficient.
Days Payable Outstanding (DPO)	20.92	22.93	-8.76%	The food industry average is around 30 to 45. Lifeway is low.
Asset Turnover	2.06	1.96	5.10%	The food industry average is around 1.2 to 1.5. Lifeway is efficient.

Valuation

Ratio/Metric	2024	Comments
Price-to-Earnings Ratio (P/E)	32.89	Based on a stock price of $20.06 and EPS of $0.61. The food industry average is around 20 to 25. Lifeway is high.
Price-to-Book Ratio (P/B)	0.32	Based on a stock price of $20.06 and book value per share of $62.75. The food industry average is around 2 to 3. Lifeway is low.
Price-to-Sales Ratio (P/S)	1.62	Based on a stock price of $20.06 and revenue per share of $12.37. The food industry average is around 1 to 2. Lifeway is within range.
Enterprise Value to EBITDA (EV/EBITDA)	11.17	Market Cap = $20.06 * 15,100,000 = $302,806,000 EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = $9,025 + $105 + $4,944 + $3,386 = $17,460 (in thousands) EV = Market Cap + Total Debt – Cash = $302,806 + $0 – $16,728 = $286,078 (in thousands) EV/EBITDA = $286,078 / $17,460 = 16.38 The food industry average is around 10 to 15. Lifeway is within range.

Growth Rates

Ratio/Metric	2024	2023
Revenue Growth	16.67%	N/A
Net Income Growth	-20.61%	N/A
EPS Growth	-20.78%	N/A

Other Relevant Metrics

Adjusted EBITDA: The company defines Adjusted EBITDA as Operating Income plus Depreciation and Amortization, plus Stock-Based Compensation. This is a non-GAAP measure used by management to evaluate performance. For 2024, Adjusted EBITDA would be $13,852 (Operating Income) + $3,386 (Depreciation and Amortization) + $2,446 (Stock-Based Compensation) = $19,684 (in thousands). For 2023, Adjusted EBITDA would be $16,995 + $3,162 + $1,497 = $21,654 (in thousands). This metric decreased from 2023 to 2024. While adding back non-cash expenses can provide a clearer picture of operational cash flow, investors should be cautious and consider why these adjustments are necessary and if they consistently reflect the company’s underlying performance.