Lifeway Foods (NASDAQ:LWAY) reported record third-quarter sales as demand for its kefir and Farmer Cheese continued to rise, but higher costs and production constraints weighed on profitability.
Net sales reached $67.8 million in the third quarter of 2026, up nearly 19% from a year earlier and marking the company’s 28th consecutive quarter of year-over-year sales growth. Net income fell to $0.3 million, or $0.02 per basic and diluted share, from $3.5 million, or $0.23 per share, a year earlier.
President and CEO Julie Smolyansky said higher volumes of Lifeway’s flagship kefir and Farmer Cheese drove growth, although the company could have sold more if it had additional production capacity. Lifeway expects an expansion of its Waukesha, Wisconsin, facility to begin increasing manufacturing capacity in the first quarter of 2027.
Capacity Constraints and Expansion
Smolyansky said demand is approaching the limits of what Lifeway can produce in its own factories. The company has been allocating products to existing customers because of the constraints and expects capacity issues to continue through the fourth quarter and, to a lesser extent, into the first quarter of 2027.
The Waukesha plant underwent a planned shutdown of approximately one week during the third quarter for improvements and maintenance. Lifeway did not disclose the financial impact of the shutdown, but Smolyansky said some orders that coincided with the end of the quarter were shipped in the first few weeks of the fourth quarter.
At completion, the Waukesha expansion is expected to more than double the facility’s capacity. Smolyansky said significant increases should begin in January, with the majority of the upgrades coming online in February and further improvements following. The company also plans to add shifts and supplement production through co-manufacturing partners.
Smolyansky said the expansion would support additional products at existing retailers as well as new accounts. Lifeway currently supplies a handful of Costco distribution centers and is discussing opportunities with others nationwide, she said. Distribution would roll out over time rather than arrive at all locations at once.
Margins Under Pressure
Gross margin was 18% in the third quarter. Smolyansky said milk prices rose approximately 26% in the second quarter from the first and eased only minimally in the third. Higher oil prices also increased packaging and freight costs.
For the fourth quarter, Lifeway expects average milk costs to be higher than in the third quarter and packaging, ingredient and transportation costs to remain elevated. Smolyansky said she expects fourth-quarter gross margin to fall between the company’s second- and third-quarter percentages.
Lifeway is working with retailers on price increases across its portfolio, with changes expected to take effect on a rolling basis through the end of 2026 and into the first quarter of 2027. Smolyansky said the company had not taken broad price increases since 2022, and noted that some retailers have been hesitant to accept increases across the industry.
Looking to 2027, Smolyansky said Lifeway believes it can return to historical gross margins of more than 25%, supported by pricing, expected milk-price stabilization and operating efficiencies from Waukesha. She cautioned that the timing of cost relief depends on factors outside the company’s control.
Sales Growth and New Placements
For the first nine months of 2026, net sales rose 25.8% to $197.7 million, equivalent to about 93% of Lifeway’s full-year 2025 sales. Smolyansky said the company was on pace to surpass its annual sales record.
Selling, general and administrative expenses represented 16.2% of third-quarter sales, down from 19.6% a year earlier. For the first nine months, the figure was 17.2%, compared with 19.1% in the prior-year period.
Smolyansky pointed to new retail placements across Lifeway’s product lineup. Farmer Cheese recently gained space at select Target stores, while Organic Farmer Cheese is available at Erewhon and Sprouts. Muscle Mates has reached Kroger and Wegmans, and Kefir Butter is available at Meijer, she said.
Lifeway has also brought frozen kefir back to soft-serve machines through food-service outlets. Smolyansky said the company sees opportunities to reach new consumers through its core products and recent introductions, as well as through demand for protein, gut health and convenient foods.
About Lifeway Foods (NASDAQ:LWAY)
Lifeway Foods, Inc. is a U.S. food company specializing in cultured and probiotic dairy products. Its offerings include drinkable kefir, a fermented milk beverage, as well as cultured dairy products such as farmer cheese, sour cream and probiotic shots. Founded in 1986, the company has built its business around kefir and related products, which it sells under the Lifeway brand. Its products are distributed across the United States and are also available in select international markets. Julie Smolyansky has served as Lifeway Foods’ president and chief executive officer since 2002, following the death of her father, co-founder Michael Smolyansky.
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