As a general rule, publicly traded companies like to give their investors a heads-up when earnings information is on the way. Sometimes, we learn earnings release dates far in advance. Other times, you get a couple of months' notice. Still other companies "call an audible."
And then there's Lifeway Foods (Nasdaq: LWAY ) . Lifeway strives to, shall we say, "make life interesting." Every time it reports earnings, or sales, it's a surprise. But we can still guess at the date, right? Last year's Q2 news was released Aug. 14. It seems reasonable to guess that this year's version will appear somewhere close to that date. Here's what to expect.
What analysts say:
- Buy, sell, or waffle? Two analysts keep tabs on Lifeway. Both think you should buy it.
- Revenue. They predict sales will grow 21% to $11.8 million ...
- Earnings. ... while profits head in the other direction, diving 25% to $0.06 per share.
What management says:
Turns out, cultured dairy products are not immune to recessions. We now know (from Lifeway's sales report released last month) that revenue was actually up only 19%.
What management does:
Not that 19% growth is anything to sneeze at -- but it's a far cry from the 20%-plus (sometimes way plus) growth we've come to expect from the little kefir maker:
Data from company press releases.
Meanwhile, the margins that Lifeway earns on these revenues have also been slipping:
|
Margins
|
12/06
|
3/07
|
6/07
|
9/07
|
12/07
|
3/08
|
|
Gross
|
40.4%
|
39.9%
|
39.6%
|
36.7%
|
33.9%
|
32.1%
|
|
Operating
|
15.3%
|
15.0%
|
16.0%
|
13.5%
|
11.5%
|
9.8%
|
|
Net
|
10.4%
|
10.2%
|
11.1%
|
9.6%
|
8.1%
|
7.1%
|
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Judging from Lifeway's surge in stock price since the sales report, it seems that investors expect a change in the company's fortunes soon. (The new distribution agreement with Costco (Nasdaq: COST ) may explain that sentiment.) Meanwhile, analysts have held their earnings estimates in place even after learning of the sales shortfall. Here's why this worries me:
For some time we've been writing about the lactose intolerance of corporate dairy consumers such as Kraft (NYSE: KFT ) , Dean Foods, and even Starbucks (Nasdaq: SBUX ) . Like Lifeway, they're all getting squeezed by high milk prices. These costs have pressured Lifeway from the "supply side." Judging from Lifeway's sales report, we may now face a second threat on the "demand side," meaning you and me -- the consumers.
While the price of kefir doesn't seem to be rising at the local grocery, it might not take a price increase to depress demand. At $3.49, a quart of kefir is already close to the price of a gallon of milk. And Lifeway's ballyhooed new ProBugs line of single-serving, kid-centric kefirs is even pricier -- nearly $5 for 20 oz. of product. In tough economic times, I could certainly see why a consumer might spend that five-spot on 128 oz. of gasoline for the family wagon, and send the kids to school with a soda.
Moral of the story: We all hope for the best for Lifeway, but it's time to start preparing for the worst.
For more on the little dairy biz that could (at least until recently), read:
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