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Non-Tech : LIFEWAY FOODS (LWAY) -- Ignore unavailable to you. Want to Upgrade?

To: Holly R. who wrote (232)	7/8/1998 2:17:00 AM
From: mark cox	Respond to of 352

Conversation with the CEO. Well after trying for 3 days and 5 phone calls, my brother and I finally got thru and spoke with Mr. Smolyansky, the CEO of Lifeway. Here's what we found out. THE RESTAURANT For the moment he has decided not to sell the restaurant. Before anyone thinks this is bad news listen to this. He has a plan that he is looking into that could double the sales price from the current $1.5 million up to $3 million in 1 1/2 years. He said that he would have to pay taxes on it when he sells. He hasn't decided what he is going to do yet. He is always thinking of how to make the most money from his resources. He did state that the restaurant is ready to be sold at a moments notice if he so decides. Although he wouldn't tell us what his plan is, he did describe the property to us. This is what it is: Looking at the building from the road, on the right it is bordered by a golf course. In the back there is a river and on the other side of the river is another golf course. On the left it is bordered by a Tennis and Racquet Club. We can speculate like crazy what he has planned but the one certainty is that he will get the most money for that piece of property that is possible. That is what he does best. EXPORTS He stated that the primary market for the company is the U.S.A. He considers any revenues from Eastern Europe to be icing. Also all sales to Eastern Europe are " Cash Before Delivery ". He stated that sales to Canada have increased dramatically. SUPERMARKETS LWAY's kefir is being sold in a large supermarket chain in the N.Y. , N.J. , and CONN. tristate area. It is presently being carried in 16 of their stores. In Sept. it will be in 40. At that time he will do "in store" demos in all 40 stores. Two months ago LWAY signed an agreement with one of the largest supermarket chains in Canada. It won't be carried in all of their stores. Recently there have been 2 articles written about LWAY and Kefir in 2 major newspapers. One is the Miami Herald and the other is the Nashville Tennessean. I have seen the Miami article and it gives a good description of kefir's taste, its history and who it is good for including the mention of lactose-intolerent people. It names 5 grocery stores that carry LWAY kefir in the Miami area in addition to health food stores. Then it says to look for it soon in 3 more stores. It lists LWAY's phone # and website address. I can't get the Tennessean article but I must assume that LWAY has recently moved into one or more supermarkets in the Nashville area because he did the same thing when he got into Dierburgs supermarkets in St. Louis and the other stores in Miami. He stated that they are achieving good results with 'Basics Plus'. It is being sold in approx. 90 stores in Chicago now and is increasing on a daily basis. In our last conversation 3 1/2 months ago he stated that it was in 30 stores. That's a +200% increase in stores just in the Chicago area. THE NEW FACILITY He is adding new equipment to the facility all the time. In July they will start production with the 8 oz. single serving size containers. The potential markets mentioned for these are: hospitals, nursing homes, convience stores, coffee shops, child care centers and supermarkets. He has recently laid off 5 employees which amounts to approximately 12% of the work force. He said the reason for this was the high efficiency of the new facility produced by the high automation. COLLABORATIONS We asked him if LWAY was developing any new products with any other companies. The answer was 'yes', two companies. He would not give us any company names or what the products were. This is what we do know. 1st Company: Developing kefir products that either had to do with probiotics or biotech components, I don't remember exactly what he said. 2nd Company: It is a large mail order company with over 100,000 customers. The products will be produced by LWAY but will be sold and marketed under the mail order company's name brand. These products will be quite expensive in comparison to LWAY's other products. MISC -- In August there will be 'several' new distributors coming onboard to start carrying LWAY's products. -- The price of raw milk has been dropping sharply. He intends to keep his prices at the current levels thus improving margins. -- He stated that the 3rd and 4th quarters will see the real growth begin. ( remember that in the 1st quarter not including last years other income, there was a +40% increase in earnings ). -- Doing some searches online I found yet another newspaper Kefir article dated 5/20/98 in the Chicago Tribune. MARKETING This is perhaps the best news of all. About 25% of our conversation was about marketing. Word of Mouth advertising is " NOT " what he is going to do. He told us that you have to spend some money to make some money. In the 3rd quarter he will be running cable TV advertisements for 60 days in the Chicago area. He will also run cable TV ads in the areas of the country where they have good distribution. He will do this over the next two quarters. They will be advertising in several health magazines as well. He has teamed up with a professional marketing person from one of the largest dairy businesses in the U.S. They have come up with 3 different plans. He said that he will borrow the money from a bank for advertising and capitalize it over 5 years. This way it won't have a big impact on margins or earnings. We were going to tell Mr. Smolyansky how important we thought marketing was and instead he spent alot of time telling us. We are excited by this news. I will post a summary of everything in another post when I get time. Mark

To: Holly R. who wrote (232)	7/8/1998 2:20:00 AM
From: mark cox	Respond to of 352

My thoughts on the 2nd Quarter. I have no real data to work with for making estimates for the 2nd quarter. I can only use the 1st Quarter numbers as a basis. 1st Quarter revenues were up +15% and the net profit margin was 14%. Those are facts. Logic would say that revenues should have increased somewhat over the 1st Quarter because there are more stores carrying LWAY's products. I am hoping for a +20% increase in 2nd Quarter revenues over last year. Secondly with milk prices having dropped and fewer employees for at least part of the 2nd Quarter, I will use a net profit margin of 14% to 15% as an estimate. If revenues increase by +20% it would give us $1.77 million ( estimate ) for the 2nd Quarter. $1.77 million times 14% net profit margin = $247,800 net income or $ 0.065eps $1.77 million times 15% net profit margin = $265,500 net income or $ 0.07eps <Caution> all of the above numbers are simply my estimates. <Caution> If we omit 'Other Income' from last year's 2nd Quarter they actually earned $ 0.05eps. So the earnings growth rates for my estimates are as follows: $ 0.065eps = +30% $ 0.07eps = +40% If these estimates are in the ballpark this would be LWAY's earnings growth rate so far this year: 1Q98 = +40% 2Q98 = +30% to +40% ( estimate ) Remember these are just my estimates which I based only on the 1st Quarter numbers and added a little growth to them. Do not base any investment decsions on these estimates. Do your own research it's your money. Any comments or discussion on the possibilities of these estimates are most welcome. Mark

To: Holly R. who wrote (232)	7/8/1998 2:23:00 AM
From: mark cox	Respond to of 352

Thoughts on the 3rd Quarter. Which of course we are currently in and I believe is the Quarter that I have been waiting for 2 years to arrive. Let's see what we know about it. 1) The CEO stated that this is the Quarter that the real growth will start. 2) Milk prices are falling so Cost of Goods Sold should decrease which should improve margins. 3) There are 5 less employees which will decrease Cost of Goods Sold which should improve margins. With improved margins come higher earnings. 4) More stores and supermarkets will be carrying LWAY's products. 5) Several new distributors will begin moving LWAY's products in August. 6) The launch of the 8 oz. single serving begins any day now. These will produce higher margins and can be sold in areas that the 32 oz. could not go. ( Convience stores, child care, hospitals, coffee shops ) 7) Most importantly the advertising campaigns start this Quarter. Keep in mind that for the 3rd Quarter last year there was virtually no 'other income' and they earned $0.04eps. For the 1st Quarter of this year they earned $ 0.06eps. Logic would seem to show that this year's 3rd Quarter should be more than the first Quarter's $ 0.06eps. But even at $ 0.06eps it would be a +50% increase in earnings and $ 0.07eps would be a +75% increase. We already know that the 1st Quarter had actual growth of +40%, my 2nd Quarter estimate is +30% to +40%, and my 3rd Quarter estimate is +50% to +75%. Sounds pretty good? Now remember that LWAY earned $ 0.02eps in the 4th Quarter. You do the math. Actually let's look at this another way. If we omit all 'other income' from 1997, LWAY actually earned $ 0.15eps last year. If we take this year's 1st Quarter $ 0.06eps and use it as the earnings run rate for the remainder of 1998 ( $0.06eps every Quarter ), we would have $ 0.24eps for 1998 which would be an earnings growth rate of +60% for 1998 and this doesn't take into account any growth over the 1st Quarter for the remainder of this year. When trying to value a stock like LWAY think like Buffet. To quote Warren Buffet, " The true value of a stock is not what it did, or what it's doing now, but what it's going to do next year or even ten years in the future." In my opinion the days for buying LWAY at a cheap price will disappear sometime in this Quarter. Do not base any of your investment decsions on the above comments and estimates. Do your own research, it's your money. Mark