Q2 2025 Lifeway Foods Inc Earnings Call

Speaker #1: 25 25 Conference call. On the call with me today is Julie Smolansky, president and chief executive officer. By now, everyone should have access to the press release that went out this morning.

Speaker #1: If you have not received the release, it is available on the investor relations portion of Lifeway's website, at www.lifewayfoods.com. A recording of this call will be available on the company's website.

Speaker #1: Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements. The words 'believe', 'expect', 'anticipate', 'plan', 'will', and other similar expressions generally identify forward-looking statements.

Speaker #1: These statements do not guarantee future performance and therefore undo reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements.

Speaker #1: Lifeway assumes no obligation to update any forward-looking projections that may be made during today's call, except as required by law. All of the forward-looking statements contained herein speak only as of the date of this call.

Speaker #1: And with that, I would like to turn the call over to Lifeway's president and chief executive officer, Julie Smolansky.

Speaker #2: Thank you, John, and good morning to everyone joining us. As always, we greatly appreciate your interest in Lifeway Foods. I'm excited to be speaking with you today, following another extraordinary quarter for Lifeway Foods.

Speaker #2: A quarter that reinforces our momentum, showcases our market leadership, and demonstrates the expanding scale of our platform. In the second quarter of 2025, we delivered record net sales of $53.9 million with approximately 18% volume-led growth when adjusted for strategic portfolio changes.

Speaker #2: This performance builds on an exceptional 2024 and underscores how Lifeway's growth engine is accelerating. We are not just growing; we are expanding our leadership in the Kefir category, winning share, strengthening our brand equity, and broadening our distribution reach across multiple channels.

Speaker #2: Before I walk through the details, I want to recognize our Lifeway team. The consistency of our results and the exceptional service we deliver to customers and partners stem directly from your dedication and execution.

Speaker #2: You are driving this success, and we are so grateful. Our net sales growth this quarter was powered primarily by higher volumes of Lifeway branded drinkable kefir and farmer's cheese.

Speaker #2: The significance of this performance is even greater when you remember that in Q2 2024, we already had a record-setting quarter with over 25% growth, and yet we built on that with additional double-digit gains.

Speaker #2: We achieved this while executing deliberate strategic changes to sharpen our focus on high-margin, brand-building opportunities. In late 2024, we exited a lower-margin retail relationship and adjusted terms with a distributor to reduce build sales but improve freight cost efficiency.

Speaker #2: Even with these adjustments and a temporary sales lag from a partner's distributor cyberattack in early June, our momentum was undeniable. This marks our 23rd consecutive quarter of year-over-year sales growth, nearly six years of uninterrupted expansion, and that growth is not slowing.

Speaker #2: We are riding powerful consumer trends that continue to accelerate. Demand for protein-rich, probiotic-functional foods and heightened awareness of gut health's role in overall wellness.

Speaker #2: This is particularly pronounced among the more than 15% of Americans now on GLP-1 medications, who are seeking nutrient-dense, satisfying foods that naturally support GLP-1 hormone production and digestive health.

Speaker #2: Lifeway's portfolio is perfectly aligned with these needs. Growth profit margin in Q2 was 28.6%, up 160 basis points from last year and over 460 basis points from Q1.

Speaker #2: Our strongest performance since 2023. This improvement came from branded volume growth, manufacturing efficiencies, and favorable conventional milk pricing, partially offset by higher organic milk costs and planned trade investments to support distribution and innovation.

Speaker #2: Selling general and administrative expenses were 9.5 million dollars as we continue to invest in marketing, sales activation, and retail expansion. These investments are paying off.

Speaker #2: They are driving trial, accelerating velocities, and strengthening consumer loyalty. Net income was 4.2 million, or 28 cents per share compared to 3.8 million, or 26 cents per share last year.

Speaker #2: This reflects a clean flow-through from top line to bottom line, demonstrating that our growth is both sustainable and profitable. Collagen is a perfect example of our ability to lead emerging wellness trends.

Speaker #2: The global collagen market is projected to exceed $8 billion by 2030, and Lifeway was first in the category to combine probiotics and collagen in our probiotic smoothies with collagen.

Speaker #2: This innovation taps into our dual consumer priorities of gut health and beauty from within. Our berry blast was recently named a 2025 Good Housekeeping Snack Award winner, and the entire line is resonating strongly with consumers.

Speaker #2: Our marketing is embedding Lifeway into the heart of culture and sparking viral moments. On TikTok, millions of consumers are discovering Lifeway Kefir through authentic testimonials about how they feel better after drinking it daily.

Speaker #2: National Kefir Day made its debut this June, with official proclamations from Illinois, Wisconsin, and other states, celebrations coast to coast, and a stunning probiotic-powered drone show lighting up Chicago's skyline.

Speaker #2: At the Chicago Loop 110 NASCAR race, our bold Lifeway branding took center stage on Josh the Licky's car, tapping into one of the fastest-growing fan demographics.

Speaker #2: Women, 16 to 24, and under 35 audiences, and connecting athletic performance with gut health in front of millions of viewers. This is how we make Lifeway not just a brand in the dairy aisle, but a lifestyle icon in the public consciousness.

Speaker #2: Our distribution expansion continues across channels. Target is adding over 1,100 new 32-ounce kefir placements, Publix is launching new 8-ounce items, and Whole Foods, BJ's, Costco, Amazon Fresh, Ingles, and Kroger divisions are expanding their Lifeway sets.

Speaker #2: Farmer Cheese is gaining distribution in H-E-B, Hy-Vee, Albertsons, and Lowe's food. We recently began shipping 8-ounce kefir 12-packs to over 60 Costco locations in San Diego.

Speaker #2: A key step towards national club expansion. Capital spending was 4.5 million dollars in the first half of 2025 as we expanded capacity and upgraded facilities.

Speaker #2: Our state-of-the-art walk-in shop plant is already enhancing efficiencies and once all planned investments are complete, we expect to nearly double production capacity and more than triple bottling speed.

Speaker #2: Our growth strategy is working. We are reiterating our target to achieve between 45 and 50 million in adjusted EBITDA by fiscal year 2027, and our early Q3 results show continued acceleration.

Speaker #2: Our unaudited estimate Q3 2025 net sales through 8/11 has already surpassed 26.4 million dollars, over a 20% increase from the same time last year.

Speaker #2: In July we delivered our highest week of growth sales in the company history. 5.5 million dollars, up 66% year-over-year. Lifeway is operating from a position of strength, leading the category, expanding our platform, building cultural relevance, and scaling profitability.

Speaker #2: We see significant runway ahead as more consumers embrace gut health, functional nutrition, and the benefits of probiotics. This was another defining quarter for our business and our momentum is only building.

Speaker #2: We are executing with discipline, innovating with purpose, and expanding our reach to bring Lifeway to more people in more places than ever before. The results speak for themselves.

Speaker #2: With continued investment behind our key Lifeway branded products, alongside the growing consumer embrace of health and wellness, we are well-positioned to continue this incredible momentum, through the back half of the year, and to further pursue our mission to provide best-in-class, bioavailable probiotic and nutritious foods to our growing base of consumers.