Chalk it up to being the manufacturer of an easy-to-spoil product. When kefir maker LifewayFoods
Reporting $7.4 million in third-quarter sales on Tuesday, Lifeway grew its sales 44%, of which 26 percentage points were organic growth. The remaining 18 percentage points came from "inorganic" growth from two months' worth of sales from the firm's recently acquiredHelios. Now, you may recall that I drew up some back-of-the-virtual-envelope calculations on the combined firms' sales when discussing this acquisition back in August. Judging from yesterday's update, those numbers still look valid.
With $12.4 million in first-half sales, Lifeway proper "needed" to book another $6.2 million or so in Q3 to maintain its fiscal run rate. In fact, core sales came in at $6.6 million, or about $360,000 more than I would have guessed. Meanwhile, Helios' numbers came in precisely at its run rate. The $900,000 in sales it generated in the months of August and September suggest about $1.35 million for the quarter, so right on plan for this year, and better than last year.
That said, what we're really looking for out of this acquisition (or any acquisition, really) is for the "whole" of acquirer plus aquir-ee to exceed the sum of its parts. The absolute dominance that Lifeway obtained over the nascent market for kefir in the U.S. when it acquired its No. 2 rival should result in accelerated sales growth for Lifeway and Helios both. Moreover, ideally, the economies of scale of the larger company should yield improved profit margins as well. We're not seeing the former just yet, and we won't see the latter until the company reports its Q3 earnings (historically, about a month after the sales results come out).
Then again, this acquisition is only two months old, and it takes time to integrate one business into another and begin wringing out economies of scale. I wouldn't expect to see too many improvements, other than those already evident in Lifeway proper, when the earnings news arrives next month. But by Q4, we should get some hard evidence on whether this merger is living up to its potential.
For more healthy musings on Lifeway, read: