Second verse, same as the first.
Actually, we're probably in verse 15 or 16 for Lifeway Foods (Nasdaq: LWAY), as the little kefir maker just keeps on growing. On Monday, it reported its umpteenth quarter of 20%-plus organic sales growth, as fourth-quarter revenues breached the $10 million mark, up from last year's $7.9 million.
Granted, total sales growth has been exceeding that pace in recent quarters, thanks to the temporary boost to comparable sales that Lifeway enjoyed when it bought out chief rival Helios in late 2006. But now that we're comparing apples to apples once again, we're back to the mid-to-upper-20s growth investors have come to know and love.
So is it good news all around?
Not necessarily. For one thing, we don't know how much of this week's "sales" number derived from the price increase that Lifeway announced last quarter, and how much came from actual increases in volume of product shipped. Nor do we know how profitable these sales were, because Lifeway habitually reports its sales, and profits, in separate press releases arriving weeks apart.
Most important of all, however, I detected a certain amount of wishful thinking in Monday's press release. Listen to how CFO Edward Smolyansky described how milk prices might affect Lifeway's profits: "We had fought rising raw-material costs all year and are pleased to see that in December 2007, the price of conventional milk, our largest cost-of-goods-sold component, decreased by approximately 7% from the September 2007 highs and are hopeful this trend will continue in 2008."
But wish he may, wish he might, Smolyansky's wishes ain't coming true tonight. Sure, milk prices are expected to come down a bit from 2007 levels, but they will still remain well above five-year averages. And despite some downward trends already seen in prices, fresh-milk costs rose 23.2% year to date in the last Consumer Price Index release in November. So even if milk prices somewhat recede, costs will remain substantially higher than they were a year ago.
Foolish takeaway
The price declines to which Smolyansky referred in the last quarter of 2007 may bode well for profits at Lifeway -- and similarly dairy-dependent firms such as Dean Foods (NYSE: DF), Kraft (NYSE: KFT), Hershey (NYSE: HSY), and even Starbucks (Nasdaq: SBUX) -- in this upcoming round of earnings reports. But the leading indicators as we enter 2008 suggest that the resurgence in their fortunes (if it materializes) could be short-lived.
For more on this little kefir maker that could (?), read:
