Lifeway Foods Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 2 speakers on the call.

Operator

Good morning. Welcome to Lifeway Foods' Second Quarter 2024 Conference Call. On the call with me today is Julie Smolensky, President and Chief Executive Officer. By now, everyone should have access to the press release that went out this morning. If you have not received the release, it is available on the Investor Relations portion of Lifeway's website atwww.lifewayfoods.com.

Operator

A recording of this call will be available on the company's website. Before we begin, we would like to remind everyone that their prepared remarks contain forward looking statements. The words believe, expect, anticipate and other similar expressions generally identify forward looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward looking statements and LifeWay assumes no obligation to update any forward looking projections that may be made in today's release or call.

Operator

All of the forward looking statements contained herein speak only as of the date of this call. And with that, I'd like to turn the call over to Lifeways' Chief Executive Officer, Julie Smolansky.

Speaker 1

Thanks, John, and good morning to everyone joining us today. As always, we greatly appreciate your interest in LifeWay Foods. It's a pleasure to speak with you today, and I'm excited to share that our business momentum continued strongly in the Q2 as we once again delivered monumental results highlighted by robust top line growth. Remarkably, for the 5th consecutive quarter, we surpassed the company record for quarterly net sales growing more than 25% year over year, driven by volume growth of our flagship Lifeway Drinkable Kiefer. Before diving deeper into the results, I'd like to thank the whole team for their flawless execution as it has allowed us to offer superior service to our valued customers and clients.

Speaker 1

Over the last few years, we have faced unprecedented times with a volatile macro environment and a global pandemic. Yet through the hard work of our whole team, we haven't skipped a beat and consistently delivered stellar growth. With that said, I will now review our extraordinary results for the Q2 of 2024. Our record high net sales were $49,200,000 for the period ended June 30, 2024, an increase of $10,000,000 or 25 0.3% compared to the Q2 of 2023. The strong growth was primarily driven by higher volumes of our branded drinkable kefir.

Speaker 1

Impressively, we outperformed our previous record high sale, which occurred in the Q1 of this year by more than 10%. This result gets us extremely close to the company milestone that we've circled for some time now, which is that $50,000,000 quarter. We're pleased to continue delivering immense volume led growth as it further demonstrates the effectiveness of our strategic sales and marketing investments at driving velocities and capturing new customers for our key product offerings. I'd like to remind everyone that 2023 was an unbelievable record breaking year for the company, which makes this monumental growth for the first half of 2024 even more incredible. For the 6 months ended June 30, 2024, our net sales were $93,800,000 a 21.6% increase compared to the 1st 6 months of 2023.

Speaker 1

We have great business momentum and a loyal growing customer base and we're well on pace to set another Lifeway high for annual sales in 2024. We reported a gross profit margin of 27% for the period ended June 30, 2024. On a sequential basis, when compared to the Q1 of this year, our margins improved 120 basis points. Additionally, for the 6 months ended June 30, 2024, our gross profit margin has improved 110 basis points when compared to the 1st 6 months of 2023. We are pleased with the progress we've made on our margins and we continuously look to proactively manage the supplies and transportation of our products to seamlessly meet our growing demand.

Speaker 1

As shipment volumes of our Lifeway branded products continue to grow nicely, we will continue to improve our productivity and position ourselves for even stronger margins. Now to expenses. Selling, general and administrative expenses were $7,800,000 for the period ended June 30, 2024. We continue to invest behind our core products through strategic marketing, which has been very effective in driving velocities and customer retention as evidenced by our consistently strong sales results. Our net income for the period ended June 30, 2024 was $3,800,000 reflecting an EPS of $0.26 per basic share and $0.25 per diluted common share compared to the net income of 3 point $2,000,000 or $0.22 per basic share and $0.21 per diluted common share during the Q2 of 2023.

Speaker 1

Our strong top line performance continues to flow through smoothly to the bottom line indicating our growing profitability profile. Capital spending increased approximately $2,000,000 to $3,900,000 during the 6 month period ended June 30, 2024 compared to the 1st 6 months of 2023. This increase in cash was used as expected and reflects our planned increase during 2024 compared to 2023 to support our continued business growth. Our capital spending is focused on 3 core areas supporting growth, cost reductions and facility improvements. Our spend is very efficient and we consistently generate strong returns when installing additional tanks as we leverage existing infrastructure to scale the business.

Speaker 1

With our efficient capital spend, we are very prepared and have the capacity and operations in place for continued sales tailwinds. We have now published 19 consecutive quarters of year over year net revenue growth. And as I mentioned before, 5 consecutive quarters setting a Lifeway record in quarterly net sales, both streaks we are incredibly proud of and excited to pursue further. While many businesses in the broader space have called out a more cautious consumer, Lifeway has continued to excel and we are not seeing a slowdown within our business. It is no secret that consumers continue to face macro headwinds including inflation and high interest rates, yet our growing customer base is proving resilient and very loyal as we continue to grow rapidly, led by volume growth and we believe that this is because our premium better for you offerings come with exceptional value.

Speaker 1

Lifeway Keefer is accessible, nutrient dense and research suggests that consuming it regularly improves overall health and well-being. Lifeway products such as Kiefer and Farmer's Cheese offer consumers a high quality protein, probiotics, calcium, vitamin D and are a great way to close the nutrition gap throughout life stages for everyone from children to more aging populations. Studies also show that people who consume fermented dairy tend to make healthier lifestyle choices overall. Bud health and its connection to brain health and skin health is interesting even to Gen Z consumers. And the high quality protein and dairy in Lifeway Keefer is bioavailable, easy for your body to use and is naturally occurring.

Speaker 1

Today's consumers are not willing to sacrifice their health and wellness and are focused on consuming high quality, better for you products at an affordable price. This trend has led to soaring demand for bioavailable foods like Lifeway Keefer and should continue to be a great tailwind for us. Our entire premium product portfolio led by our flagship keefer is nutritious, delicious and reasonably priced, which is why consumers keep coming back for more and eagerly await for new flavors and line extension. The probiotics in kefir support a healthy microbiome and approximately 80% of the immune defenses come from the gut. Probiotic products such as kefir are the focus of intense research related to the microbiome's role in stress, depression and anxiety.

Speaker 1

We now know that up to 90% of the body's serotonin comes from gut cells and the gut brain axis, which links the emotional and cognitive centers of the brain with our intestinal functions, plays a major role in happiness and well-being. A study published in BMC Medicine also suggests that probiotics in DairyKeeper show potential promise in improving gut health of ICU patients and a small study protocol in the UK examined effects and potential benefits in children with ADHD who consume Kiefer. It's very exciting for the microbiome research and we applaud and support these recent efforts to uncover new and amazing ways that fermented and cultured foods can positively impact our health. Deserving of its own mention, in March, the FDA announced the first ever qualified health claims regarding the consumption of cultured dairy and the reduced risk of Type 2 diabetes. We look forward to begin incorporating this qualified health claim on our labels and within our marketing in the coming weeks months.

Speaker 1

This is an excellent development further illustrating the incredible health benefits of our products and we believe this will further compel health focused consumers to our brand. To build on the already great health benefits of Lifeway Foods, we will be optimizing our product offerings by reducing sugar and lactose counts in nearly all of our Lifeway products in the coming months. Market data shows consumers are looking to lower sugar consumption and kefir is a natural option to get a delicious snack with less sugar. While Lifeway products are already 99% lactose free, in the coming weeks we will be rolling out existing products with 100 percent lactose free labeling. High quality protein, low sugar and lactose free are trends that are not going away anytime soon and Lifeways at the forefront of bringing these attributes to the marketplace.

Speaker 1

As we've made clear, selling our industry leading drinkable Lifeway Kiefer is what we do best and our focus on it is consistently paying dividends. We believe the modern health focused consumer will continue to be a tailwind to the expanding U. S. Kefir market and we will continue to dedicate the bulk of our time and investments into our drinkable kefir to increase brand and category exposure, drive trial and capture more and more share of today's health focused consumer in the growing market. As the market leader, we are also consistently evaluating trends within the probiotic and healthy food space to improve and diversify the offerings of our growing consumer base and their preferences.

Speaker 1

Within kefir, these insights have led to numerous successful product innovations, including our guava low fat kefir, our organic whole milk products and our organic grass fed kefir flavors. Each of these innovations have gained popularity and successfully attracted different types of consumers. Our organic category has been a major hit to date and provided us strong growth. In addition to our focus in the kefir category, we are still strategically investing behind the cult favorite, Lifeway Farmers Cheese, in an effort to capitalize on the continued consumer demand for soft cheese products. Seasonally, Farmers Cheese performs the best in fall and winter and we are quite excited to get into its peak season.

Speaker 1

I'll now touch on some marketing and advertising updates. Just a couple of weeks ago, we had an excellent brand experience at Lollapalooza in Chicago. Our Pro Bulk products were featured in the Lifeways Kidzapalooza section of the festival and we gave out thousands of samples while interacting with following of more than 2,000,000 people just named our Yoga in the Sky series as one of the best activities to do in New York. We partnered with Up, Up and Away Yoga to deliver this unique 1 hour long yoga experience at the top of the 1 World Trade Center, as each participant can enhance their workout with a protein boost from our delicious Lifeway Kiefer. We always enjoy these in person experiences as they fit into our efforts to connect with our consumers on a deeper level on their wellness journey.

Speaker 1

We remain very committed to investing behind our core products. With that said, we have been very strategic with our marketing dollars focusing on smart programs that effectively move units and drive velocities. Our goal is to ensure Lifeway products are present at interrupted moments within the store such as high traffic end caps to increase trial and exposure to our brand to consumers who might not normally shop in our section. A great example of this was our successful in store promotion during the Q1 where we partnered with many different retailers to create a temporary refrigerated spaces, showcasing Lifeway brand products at high traffic within their stores. This was highly successful program and we expect to initiate a similar program in the coming weeks to capitalize on back to cool snacking season, which we are quite excited about.

Speaker 1

Outside of the store, we continue to invest behind our e commerce sales strategy to drive velocities and exposure. We are running targeted advertising on our retail partner sites as well as general e commerce platforms including Instacart And supporting these e commerce efforts are our continued partnerships with our social media influencers, including celebrities, chefs and nutrition experts with notable followings. Through our work with them, we advertise to a whole network of consumers and educate them on the Keeper category, our healthy offerings and the recipes they can be used in. Our marketing strategy is nimble and is also very effective and the key reason we expect to continue delivering great sales growth. Now I'll touch on some distribution updates.

Speaker 1

During the quarter, we gained new placement of organic kefir and farmer's cheese at Stop and Shop and we also increased our store count with Target. Additionally, we were very happy with the success of our club rotation featuring twin packs of 32 ounce Kiefer, a popular offering that encourages customers to increase consumption and greatly increases our visibility. The club channel is a great place for us to meet new consumers and the lower priced items at these club stores are also more attractive to entry level consumers offering a great opportunity to capture incremental revenues and customers. On a higher level, we continue to maintain our deep relationships and active dialogue with all our key retail partners and are always seeking out incremental distribution opportunities across a number of channels that make sense for our core offerings with the key focus on our flagship Lifeway Drinkable kefir. We will continue to strategically focus on and elevate our brand name products and will deprioritize private label manufacturing to ensure Lifeways long term success and unparalleled category leadership.

Speaker 1

To wrap up, this was another outstanding record breaking quarter for Lifeway. The results speak for themselves. Our core business continues to grow rapidly as illustrated by our 5 consecutive quarters setting new record highs on the top line for the business. We've come a long way since our founding in 1986 and I couldn't be prouder. With a great team in place and our dedicated investments behind our core products, we believe we are in an excellent position to continue growing strongly throughout the back half of this year and beyond, all while furthering our mission to provide best in class bioavailable probiotic and nutritious foods to improve the health and well-being of our customers.

Speaker 1

We look forward to updating you on our progress during the Q3 call in November. Thank you again for joining the call today, and I hope you all have a great rest of your summer and beginning of fall.

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Earnings Conference Call
Lifeway Foods Q2 2024
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