Gad Dairies in the First Quarter: Weiler Cost Less Cash and Expansion Still Needs Cash Flow
Gad Dairies opened 2026 with 3.9% revenue growth and 18.5% higher net profit, but much of the improvement came from the financing line after the IPO rather than a breakout in gross margin. The Weiler acquisition closed after quarter-end for NIS 42.8 million, turning the clean cash balance into funding for acquisition, inventory and new-plant investment.
Gad Dairies reported a first quarter that supports the positive side of 2026 only up to a point. Revenue grew, operating profit improved, and the balance sheet still carries no bank debt, so the company is not entering its expansion phase from a position of financial stress. The increase in net profit relied heavily on the shift from finance expense to finance income after the IPO, while gross margin barely moved and operating cash flow was only NIS 3.2 million. The 51% acquisition of Weiler closed after the balance-sheet date at a lower price than the initial number, which protects the company on closing cash and also signals that Weiler's 2025 was not a clean growth year. This quarter is therefore the start of a proof year: the May and June price increases, the weaker euro and Weiler distribution from July need to reach margin and cash flow before the new plant and broader expansion consume the remaining flexibility.
Company Overview
Gad Dairies is a food company that manufactures and markets cheeses and dairy products. The retail channel sells to food chains, supermarkets and small retailers. The professional channel sells to restaurants, pizza chains, hotels, cafes and small customers that use the company's products as inputs.
Economically, this is mainly a margin and working-capital machine. The company is measured by its ability to pass through milk, euro, raw-material and logistics costs into pricing, preserve market share, and avoid having inventory, customer credit or supplier payments absorb profit. After the 2025 IPO, bank debt disappeared, but the cash balance now has to fund acquisitions, new-plant investment, leases and working capital.
In the previous annual analysis, the key checkpoint was whether 2026 would show genuine operating improvement after 2025 net profit benefited from lower finance costs. The first quarter gives a partial answer: activity grew, but gross margin has not yet returned to the full-year 2025 level, and operating cash flow remains far below net profit.
Profit Rose Before Margin and Cash Caught Up
Quarterly revenue was NIS 172.5 million, up 3.9% year over year. Operating profit rose 6.9% to NIS 15.3 million, and net profit rose 18.5% to NIS 12.1 million. The bottom line looks strong, but the mechanism behind it still relies too much on financing and not enough on a deeper margin improvement.
Gross margin was 27.8%, compared with 27.6% in the parallel quarter and 28.0% for full-year 2025. The target milk price rose in January to NIS 2.44 per liter, 3.2% above the parallel quarter, and the company estimates that this increased raw milk purchase cost by about NIS 0.9 million in the quarter. Lower raw-material and imported-product prices, together with the decline in the euro, had not yet fully reached margin because import inventory levels were high.
The finance line has already done its work. The company moved from NIS 0.8 million of net finance expense in the parallel quarter to NIS 0.4 million of net finance income in the current quarter, following the use of IPO proceeds to repay loans. Of the roughly NIS 1.9 million improvement in net profit, about NIS 1.2 million came from the financing swing. That explains why net profit jumped faster than operating profit.
Cash flow tells the same story more harshly. Operating cash flow was only NIS 3.2 million, compared with net profit of NIS 12.1 million. Supplier and service-provider balances absorbed NIS 13.3 million, other payables absorbed NIS 2.2 million, and taxes paid absorbed NIS 4.1 million. Lower inventory contributed NIS 2.2 million.
All-in cash flexibility after actual cash uses in the quarter was narrower than the debt-free balance sheet suggests. Starting with NIS 3.2 million of operating cash flow, then deducting NIS 5.4 million of property and equipment purchases, NIS 2.5 million of lease principal payments and NIS 0.3 million of interest paid, the quarter consumed about NIS 5.1 million before deposit movements and before the Weiler acquisition. This is an all-in cash flexibility bridge for the period itself, not an estimate of normalized cash generation.
Retail Offset the Professional Channel
Almost all of the quarter's growth came from retail. Retail revenue rose from NIS 97.2 million to NIS 105.7 million, and segment operating profit rose from NIS 8.2 million to NIS 9.7 million. The professional channel moved in the opposite direction: revenue of NIS 66.8 million versus NIS 68.8 million in the parallel quarter, and operating profit of NIS 5.6 million versus NIS 6.1 million.
Growth quality matters more than the growth rate. The company says its retail market share remained 5.9%, similar to the parallel quarter. Retail growth therefore does not look like a share-gain event. It looks like participation in stronger retail demand during a period when the professional market was hit. Operation Roaring Lion reduced March professional-channel sales by about NIS 7 million versus expectations and created a segment decline of roughly NIS 4 million versus the parallel quarter, while retail grew above expectations.
Supply issues in Italian products also matter for the rest of the year. The company says the severe issues have ended, but they caused about NIS 4 million of lost sales in the quarter. Italian products are a key category in both channels: NIS 34.6 million in retail and NIS 34.4 million in professional sales in the quarter. Regular supply can help sales later this year, while renewed disruption would hurt the company's ability to benefit from price increases and retail demand.
The nearest trigger is pricing. Regulated dairy prices rose 1.05% from May 1, 2026, and unregulated product prices are expected to rise by an average 1.9% from June 1, 2026. At the same time, the target milk price for Q2 fell to NIS 2.42 per liter, down 0.82% from Q1, with an expected NIS 0.25 million reduction in raw milk purchase cost. Q2 and Q3 will show whether this combination reaches gross margin.
Weiler and the Next Read
The key post-balance-sheet event is the completion of the 51% Weiler acquisition on April 30, 2026. The price was reduced from the original plan: consideration was set at about NIS 42.8 million rather than NIS 46 million, after Weiler's value for consideration purposes was set at about NIS 84 million based on EBITDA of about NIS 11.7 million in 2025. For the company, this lowers the cash required at closing. For asset quality, it also means Weiler's numbers justified a lower price than the first number shown to the market.
| Weiler | 2023 | 2024 | 2025 | 2025 Change vs 2024 |
|---|---|---|---|---|
| Revenue | 52.9 | 59.9 | 53.7 | -10.3% |
| Operating profit | 4.8 | 9.5 | 6.5 | -31.3% |
| Net profit | 3.7 | 6.8 | 4.8 | -30.5% |
| EBITDA | 6.6 | 11.6 | 9.1 | -21.2% |
| Adjusted EBITDA | 7.0 | 12.6 | 11.7 | -7.3% |
The message is not that Weiler is a weak acquisition. The company is receiving a profitable business, activity in plant-based dairy alternatives, and exclusive distribution of Weiler products from July 1, 2026. The message is that the deal has moved from buying growth to a more measurable stage: the 2026 EBITDA target was updated to about NIS 12.7 million, and a 2027 additional consideration mechanism was added if EBITDA exceeds about NIS 16.7 million. The next stage will be decided by the ability to lift EBITDA quickly enough to justify both integration and potential future payment.
The cash balance illustrates that transition. At the end of March, the company held NIS 57.9 million in cash and cash equivalents. The NIS 42.8 million Weiler payment after the balance-sheet date would mechanically lower gross cash to about NIS 15.1 million if measured only against the end-March balance, before April and May cash movements. That is not a cash forecast, because the business continues to generate and consume cash after March. It does show that the post-IPO cash balance is no longer a large free liquidity cushion. It is execution funding.
The conclusion for the next quarters is clear. Q2 must show whether price increases, the lower target milk price and the weaker euro reach gross margin. Q2 and Q3 must show whether Weiler adds operating profit after consolidation and whether the NIS 12.7 million 2026 EBITDA target looks credible. Operating cash flow also has to move closer to profit rather than being absorbed again through suppliers, inventory or investments. The strongest counter-thesis is that the current quarter suffered from timing: the supply issue ended, price updates had not yet entered, Weiler was acquired at a lower price, and the company can enter the second half with a better mix of price, sales channel and new activity. For that read to strengthen, operating profit needs to start explaining net profit, not the other way around.
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