Why Lifeway Foods Stock Popped Today

Lifeway Foods (NASDAQ: LWAY) stock jumped 7.8% through 9:50 a.m. ET Wednesday after the company reported mixed earnings for the third quarter this morning.

Heading into the quarter, analysts forecast the kefir company would earn $0.28 per share on sales of $55 million. In fact, Lifeway ended up earning only $0.23 per share, but its sales topped $57.1 million -- an earnings miss but a revenue beat.

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Lifeway Q3 earnings

Focusing on the "beat" half of its report, Lifeway boasted that its $57.1 million in revenue set a new record for the company, rising 29% year over year -- its sixth straight quarter of uninterrupted quarterly net sales growth. Gross margin expanded by 3 full percentage points to 28.7%, and on the bottom line, Lifeway grew its earnings per share by 21%.

Lifeway maintains a "dominant position in the kefir category," said company CEO Julie Smolyansky, and Lifeway plans to "continue to capitalize on the powerful health and wellness consumer trends, including the surge in GLP-1 medication use and gut health awareness."

It's not at all clear what relation Lifeway has to GLP-1 weight loss drugs -- but a little name-dropping never hurt anyone I guess.

Is Lifeway stock a buy?

Not all the news at Lifeway is good, of course. Most crucially, while sales are growing nicely and generally accepted accounting principles (GAAP) profits nearly as well, Lifeway's struggling to produce decent free cash flow (FCF) to match its reported earnings. Year to date, cash profit totals only about $1 million. That's more than a 90% drop from this time last year -- and less than 9% of the company's reported $11.3 million in GAAP profit earnings this year.

Until Lifeway gets back to generating better FCF than this, I cannot call the stock a buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.