Lifeway sales betray probiotics surge

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If anyone doubted that the US probiotics market's star is rising,
kefir-maker Lifeway Foods' latest results, positive in spite of
milk price vagarities, should be enough to convince them.

Sales for the six months ended June 30 were $9.73 million - up an impressive 22.5 percent on last year. The Q2 leap is more impressive still, up almost 27 percent to $5.07 million.

Both income from operations and gross profit increased 22 percent in Q2, to $2.12 and $0.84 million respectively. The income from operations over the 6 months grew at a slower rate, however, of 7 percent, to $1.67 million.

Chief financial officer Edward Smolyansky said: "The cost of milk, our largest cost of goods sold component, remains at a relatively high historical value, but the price has flattened out and looks to be fairly steady going forward."

The company's​ full-year 2004 results bore the brunt of the high prices, which were caused by fluctuating cow populations, themselves partly caused by the closure of the border with Canada to prevent cattle infected with BSE entering the country. Operating profits for the 12 months took a $0.5 million dip in spite of managing to up sales by 9 percent.

Ed Smolyansky said that the company has been seeking to offset the milk prices - as well as price hikes for fuel and natural gas - by making investments in its production facility to streamline our operations. On June 30 2005, its property, plant and equipment were valued at $7.76 million, compared to $3.53 million at the same point in 2004.

The sales increase experienced by Lifeway is indicative of Americans starting to take the health benefits of probiotics on board. So-called 'friendly bacteria' took longer to capture the imagination of consumers in the US, compared to their counterparts in Australia and Europe.

A report from the Business Communication Company published in May indicated that the probiotic ingredients, supplements and foods market rose 19 percent per year over the last two years, with total sales in 2005 estimated to be worth $764 million in 2005.

Yogurts, kefirs and cultured drinks account for 65.2 percent of this total.

Although this growth is expected to slow somewhat over the next five years, an annual rate of 7.1 percent would put probiotic sales at $1.1 billion in 2010.

As for Lifeway, it is making a determined effort to be in the right place at the right time. CEO Julie Smolyansky said that the company is expanding distribution into new channels, having recently entered its first food service market. She also hopes to take the company into its first hospital/health care market within the next few months.

The management also plans to expand through acquisition of compatible product lines or businesses and their shelf space - including non-dairy food items.

In 2004 the company branched out into mainstream dairy with the acquisition of Ilya's Farms, a Philadelphia-based privately-held producer of gourmet cream cheeses, for a total cash purchase price of $575,600.

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