I have crunched the numbers on the 3rd Qtuarter 10Q.
SALES were up +9.5% and Accounts Receivable were up +10% so no problem there. (I thought the 9.5% growth in revenues was good considering the old facility being almost maxed out)
GROSS MARGIN was up +0.5% (Cost of Goods was down in relation to Revenues)
NET MARGIN was down -1.2% to 10.4% (caused by Operating Expenses and Interest Expense)
OPERATING EXPENSES were up +24%. I talked about this in a previous post. They have had to pay the expenses on their new football field size facility with no revenues being produced by it at the time to support these overhead costs. Costs which probably included, insurance, utilities, and taxes. Also I believe there were 3 new employees hired during the 3rd quarter which would account for even more expenses.
INTEREST EXPENSE was up +69% to $24,221 (caused by the mortgage note payable on the new facility)
NET INCOME was down -2.5% (caused by the last two expenses which should have far less impact with the revenues generated by the new facility causing earnings and Net Margin to rise again)
EPS was flat at $0.04eps
LONG TERM DEBT was up +123% to $1.4 million (caused by the mortgage on the new facility)
DEBT TO EQUITY RATIO is .59 vs: .44 for last year (caused by the mortgage on the new facility. The .59 ratio shows that the company is moderately leveraged which is needed to accelerate the growth of the company)
RETURN ON EQUITY is a healthy 19%
CURRENT RATIO is 2.7 : 1 (which is good/safe)
STOCKHOLDER'S EQUITY rose 24% to $3.8 million
INVENTORY rose +45% (under normal circumstances this would be a warning flag, but in LWAY's present state this is very bullish. The increased Inventory is for the new facility. Inventory was up 15% over the last quarter. This may or may not give us an indication of the future growth rate based on how much they are building up supplies. Having too much inventory ties up cash flows but not having enough can cost a company sales. I think I remember from a past call to the CEO that he said he stocks up on raw materials when prices are low. This might explain why Cost of Goods Sold decreased in relation to revenues for the quarter. The CEO is very good at saving money.)
TOTAL ASSETS increased +42% up to $5.8 million
CASH FLOWS FROM OPERATIONS was +$304,000 (3rd quarter only) and $605,000 (9 months) (Cash flows from ops is the blood flow of a company and is one of my most important criterias for how I feel about a company. LWAY has always had strong cash flows from ops. It doesn't just produce kefir products, it produces cash)
In the 3rd quarter they spent $526,000 on new equipment for the new facility. The CEO told me previously that they would be utilizing 20% of the new facility to begin with.
The company presently has $1.4 million in working capital, a current ratio of 2.7, and strong cash flows combined with already having all of the equipment they need for the new facility and have built their inventories up, LWAY looks like it can afford some growth.
In my opinion LWAY is financialy sound. I don't see anything that will get them into any trouble in the near future. In fact I'm impressed with their present situation having just acquired the new facility and equiping it. The CEO has done a great job of expanding their production capabilities without putting the company at risk.
This is a great company and for those with some patience should do quite well over the long term.
That's one kefir drinker's opinion.
Mark |
