Lifeway Foods reports Q3 net earnings of US$1.4M, compared with year-ago earnings of US$1M, as consolidated net sales rise 16% to US$20.6M

MORTON GROVE, Illinois , November 14, 2012 (press release) – Lifeway Foods, Inc., (Nasdaq: LWAY), a leading supplier of cultured dairy products known as kefir and organic kefir, today announced results for the third quarter ended September 30, 2012.

"We are excited to announce another quarter of record growth with our quarterly earnings increasing at more than double the corresponding increase in our rate of sales," said Julie Smolyansky, CEO of Lifeway Foods, Inc. "In the third quarter, we were also able to strengthen our balance sheet and increase our cash flows, while returning value to our shareholders through a dividend. Going forward, we believe that our growth strategies combined with improved operating efficiencies will enable us to report the strongest results in our Company's history."

Third Quarter Results

Third quarter of 2012 gross sales increased 16% to $22.5 million compared to $19.4 million for the third quarter of 2011. This increase is primarily attributable to increased sales and awareness of the Company's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids and BioKefir™. Lifeway's Frozen Kefir line contributed approximately $0.7 million to sales during the third quarter of 2012.

Total consolidated net sales increased 16% or $2.9 million to $20.6 million during the three-month period ended September 30, 2012 from $17.7 million during the same three-month period in 2011. Net sales are recorded as gross sales less promotional activities such as slotting fees paid, couponing, spoilage and promotional allowances as well as early payment terms given to customers.

Gross profit for the third quarter of 2012 increased 18% to $7.5 million, compared to $6.3 million in the third quarter of the prior year. The Company's gross profit margin was 33% in the third quarter, which was approximately the same in the third quarter of 2011. This was primarily attributable to a 20% decrease in the cost of conventional milk, the Company's largest raw material, partially offset by a 10% increase in the cost of organic milk.

Total operating expenses increased 13% or $0.6 million to $5.4 million during the third quarter of 2012, from $4.8 million during the same period in 2011. This increase was primarily attributable to increased general and administrative expenses.

Total operating income increased $0.5 million to $2.1 million during the third quarter of 2012, from $1.6 million during the same period in 2011. The increase in operating income is related to the increase in gross profit.

The Company's third quarter 2012 effective tax rate was 32% compared to 30% in the same period last year.

Total net income was $1.4 million or $0.09 per diluted share for the three-month period ended September 30, 2012 compared to $1.0 million or $0.06 per diluted share in the same period in 2011.

Balance Sheet/Cash Flow Highlights

The Company had $2.4 million in cash and cash equivalents as of September 30, 2012 compared to a $0.86 million at September 30, 2011. Total stockholder's equity was $38.4 million as of September 30, 2012, which is an increase of $2.6 million when compared to September 30, 2011.

Net cash provided by operating activities increased $3.5 million to $6.1 million for the first nine months of 2012. This increase reflects the Company's improvement in operating efficiencies.

Net cash used in investing activities was $1.2 million during the nine-months ended September 30, 2012 compared to net cash used in operating activities of $2.1 during the same period in 2011. This decrease is primarily attributable to the decrease in purchases of investments of $0.7 million.

Conference Call

The Company will host a conference call to discuss these results with additional comments and details on Thursday, November 15, 2012 at 9:00 a.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Lifeway Foods' website at www.lifeway.net, and will be archived online through November 29, 2012. In addition, listeners may dial 877-407-3982 in North America, and international listeners may dial 201-493-6780. Participants from the Company will be Julie Smolyansky, President and Chief Executive Officer, and Edward Smolyansky, Chief Financial Officer.

About Lifeway Foods

Lifeway Foods, Inc. (LWAY), recently named one of Fortune Small Business' Fastest Growing Companies for the fifth consecutive year, is America's leading supplier of the cultured dairy products known as kefir and organic kefir. Lifeway Kefir is a dairy beverage that contains 10 exclusive live and active probiotic cultures plus ProBoost™. In addition to its line of Kefir products, the company produces a variety of Frozen Kefir and probiotic cheese products. Lifeway also sells frozen kefir, kefir smoothies and kefir parfaits through its Starfruit™ retail stores. Find Lifeway Foods, Inc. on Facebook: www.facebook.com/lifewaykefir Follow Lifeway Foods on Twitter: http://twitter.com/lifeway_kefir YouTube: http://www.youtube.com/user/lifewaykefir.

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