Do you like big numbers? Then you're going to love the ones that kefir king Lifeway (NASDAQ:LWAY) reported last week, when it released its fourth-quarter and full-year 2005 results:
- Sales: up 23% year over year
- Pre-tax income: up 63%
- Earnings per share: up 100% (to $0.08 per stub)
Full-year results were a bit less impressive, but still good:
- Sales: again, up 23% year over year
- Pre-tax income: up only 19%, but
- Earnings per share: up 25% (to $0.30 per stub)
So far so good, but as is usual with this little company, investors had to wait a few days for further details. Lifeway reports its results with just an income statement and an abbreviated balance sheet attached. To get the full skinny, you need to wait for the related SEC filing.
That happened on Friday, and it's what we'll focus on today. First, the big news: The Danone (NYSE:DA) agreement is history. As close followers of Lifeway know, the company has had a relationship with the French dairy conglomerate for years. Summarized:
- Danone was forbidden to increase its 20% stake in Lifeway.
- Danone had a seat on Lifeway's board.
- Danone and Lifeway agreed not to compete against one another.
That agreement was being renewed on a year-to-year basis, but was finally allowed to expire on Dec. 30, 2005. As a result, Lifeway now has a new, powerful potential competitor, and Lifeway shareholders have to consider the twin possibilities that Danone will either (a) dump Lifeway's shares on the market or (b) make a bid for the company in its entirety. At this time, we do not know whether either outcome is likely.
Now, let's turn to digesting the rest of the numbers from in the 10-KSB filing that were missing from the earnings release. First, the net cash hoard has shrunk to $8.9 million ($11.8 million in cash and marketable securities minus $2.9 million in long-term debt), down from $12 million at the end of 2004.
Second, free cash flow for the year ended up at negative $3.3 million, a reversal of last year's $1.9 million in cash profit. The negative number resulted from Lifeway's purchase of a new facility this year. Taken in isolation, that sudden reversal of cash profitability looks bad -- but when you consider that Lifeway doesn't buy multimillion-dollar facilities all that often, chances are good we won't see this repeated anytime soon. And if this facility can increase production or improve efficiencies for Lifeway, it would turn out to be a good long-term investment for both the company and its shareholders.
Drink your milk and read your Fool.com. They're both good for you:
Fool contributor Rich Smith does not own shares of either company named above.
