CHICAGO - Lifeway Foods, Inc. (NASDAQ:LWAY), a dairy and consumer packaged goods company, is under pressure as its largest shareholders, Ludmila and Edward Smolyansky, who own approximately 29% of the company's common stock, have publicly demanded the resignation of CEO Julie Smolyansky and several board directors. The shareholders have cited continued underperformance and mismanagement as reasons for their demand, which was announced today.
The Smolyanskys' concerns about Lifeway's direction have been mounting since their previous campaign in February 2022, which resulted in a temporary surge in the company's stock price by about 50%. Despite agreeing to end that campaign in exchange for the company's commitment to strategic review processes, the Smolyanskys now claim the company did not fulfill its obligations. They believe that only Juan Carlos Dalto, whom they consider the only qualified independent director, should remain on the board.
Adding to the turmoil, Kanen Wealth Management, the fourth largest stockholder, initiated its own activist campaign in June 2023, which led to another 15% increase in Lifeway's share price. However, Lifeway's stock has since plummeted, losing approximately 54% of its value from its May 10, 2024, intraday high, and is trading well below several recent valuation estimates.
The Smolyanskys also challenge the credibility of the current CEO, highlighting discrepancies between her positive portrayal of the company's growth and the actual performance figures. They argue that Lifeway's marketing strategies have failed to capitalize on opportunities, such as the Covid-19 stay-at-home environment, and criticize the company's advertising expenditure as stagnant and inadequate.
This call for a leadership overhaul is part of a broader push by the Smolyanskys for significant changes at Lifeway, including the implementation of an anti-nepotism policy and the immediate termination of Julie Smolyansky's spouse and "Chief of Staff," Jason Burdeen. The shareholders have also called for an operational and strategic review of the business.
Lifeway Foods, founded by Michael Smolyansky, has been a player in the health food market for over four decades. Ludmila Smolyansky has a long history with the company, having served in various capacities, including as Chairperson of the Board until August 2022.
The information for this report is based on a press release statement from the shareholders.
In other recent news, Lifeway Foods Inc. has been experiencing significant internal and external developments. The company's largest shareholders, Ludmila and Edward Smolyansky, who possess about 29% of Lifeway, have been advocating for substantial changes to the board and executive leadership, alleging mismanagement and breaches of fiduciary duty. This dispute has been ongoing since February 2022, with the Smolyanskys demanding the replacement of the current CEO and several directors.
At the same time, Lifeway Foods has reported record-breaking Q1 sales for 2024, with net sales reaching a significant $44.6 million, a 17.8% increase from the same period in the previous year. The company's net income has also seen a substantial rise, nearly tripling to $2.4 million, while the gross profit margin improved to 25.8%. These financial highlights are largely attributed to the increased volumes of Lifeway's flagship product, kefir.
The company is also investing in its e-commerce strategy and targeted advertising on retail partner sites and platforms. Lifeway Foods has secured additional distribution opportunities at major stores, enhancing its reach to consumers. These are recent developments at Lifeway Foods, reflecting the company's continued focus on its core product line and its strategic investments in marketing and e-commerce.
InvestingPro Insights
Amidst the boardroom drama at Lifeway Foods, Inc. (NASDAQ:LWAY), the company's financial health and stock performance have become a focal point for investors. According to InvestingPro data, Lifeway holds a market capitalization of $181.78 million, with a price-to-earnings (P/E) ratio of 13.84, reflecting a valuation that some may find appealing given its adjusted P/E ratio for the last twelve months as of Q1 2024 is 13.75. This is complemented by a robust revenue growth of 14.78% over the same period, indicating a solid financial trajectory.
InvestingPro Tips suggest that Lifeway is trading at a low earnings multiple, which could signal an undervalued stock to potential investors. Additionally, the company's ability to cover its interest payments with cash flows and the fact that it holds more cash than debt on its balance sheet provide a degree of financial stability in uncertain times. Notably, analysts predict that the company will be profitable this year, a crucial factor for investors considering the stock amidst the current management disputes.
While the company's price has experienced a significant decline over the last three months, falling 38.94%, it has delivered a strong return of 102.5% over the past year. This volatility highlights the importance of thorough analysis when making investment decisions. For those seeking more in-depth insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/LWAY, which may further guide investment choices. Moreover, users can take advantage of the special offer by using coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
With the company's next earnings date on August 12, 2024, investors will be keenly watching for signs of operational improvements or further indications of the need for a leadership change as demanded by the Smolyanskys. The current situation underscores the importance of not only monitoring corporate governance issues but also keeping a close eye on the underlying financial metrics that drive shareholder value.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.