Lifeway Foods has posted a 10% drop in fourth-quarter despite an increase in sales, as higher milk prices and transport costs took their toll.

Gross profit at the kefir maker fell to US$2.3m, down from $2.5m for the comparable period last year. 

Despite the company’s declining profitability, sales rose 29% in the quarter to $10.2m.

LifeWay ‘s annual results painted a rosier picture at the company. For the full year, net income rose 9% to $3.2m. Full-year revenue jumped 40% to $38.7m.

Looking to the coming year, Lifeway remained upbeat. The company said it had raised prices in February and March to offset higher raw material costs.

Nevertheless, Edward Smolyansky, chief financial officer, said the cost of milk has dropped substantially.

“Looking at our base statements we are definitely seeing the impact of these lower milk prices, positively obviously,” he told analysts and investors on a conference call.

“We’re happy that we were able to get out of this difficult situation in the third and fourth quarters of 2007 and we’re going to move on and we still had relatively healthy margins given these difficult periods.”