SodaStream Can't Catch a Break

SodaStream (NASDAQ: SODA  ) took a hit yesterday after offering up uninspiring bottom-line guidance for the current quarter, and today it's losing even more of its fizziness after an analyst downgrade.

Stifel Nicolaus is lowering its rating on the shares -- from hold to sell -- and lowering its price target to $40. The analyst wasn't upbeat on the company behind the namesake soda maker system that turns flat water into flavored soda, but SodaStream's third quarter was enough to consider an even bleaker perspective on the stock.

A big sticking point for investors and Stifel Nicolaus is the decelerating growth in the U.S. this past quarter. Sales in the more established Western Europe market actually grew faster than SodaStream's stateside business, and that's something that we just hadn't seen since SodaStream's push into the U.S. three years ago. The recent acquisition of its Italian distributor has helped pad results in Europe, but that still doesn't take away from the less than stellar showing in the U.S. market, where soda consumption per resident is higher than in any other country in the world.

The real shocker is that SodaStream conceded during yesterday's earnings call that flavor sales in the U.S. actually declined relative to last year. Globally, flavor sales were disappointing, inching just 7% higher. However, in the U.S. -- where revenue climbed 36% on the strength of strong starter kit and CO2 refills -- syrup bottle sales fell 2.6%. Are folks using the machines less? That's not right. The carbonator refills continue to run strong. The more likely explanation is that folks are either fine with unflavored club soda or they're coming up with non-SodaStream ways to sweeten their beverages.

It's still not a welcome trend, but is it worth the sharp sell-off that has taken place on Wednesday and Thursday? The U.S. still accounts for less than a third of SodaStream's overall sales. Europe remains a larger market, but it's hard to sway stateside investors and analysts into thinking that this is a global opportunity if the high-margin flavors aren't moving. SodaStream explains this away as retailers engaging in inventory rebalancing, but it's still a trend that those sticking it out will need to keep a close eye on. Year-over-year flavor sales overall have decelerated for four consecutive quarters, and it's been a long way down from a 76% surge five quarters ago to just 7% this time around.

SodaStream has been offering a wide variety of metrics since blasting on the scene as a hot IPO three years ago, but now we know that everyone will be watching one particular gauge with intense interest three months from now. SodaStream had better make sure it puts some more flavor into its flavors.

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  • Report this Comment On October 31, 2013, at 1:52 PM, TMFLomax wrote:

    Great piece Rick. I am one of the people who uses another way to flavor my SodaStream beverages. (The water enhancing drops!)

    I do wish they'd come up with more flavors -- I like the sparkling iced tea flavors but they don't have caffeine -- which is what I want during the day.

    I'm looking forward to more flavors (with no sugar, actually, which is another part of my problem).

    Just sharing because I think you're onto something there with the flavor sales and what's going on.

    Alyce

  • Report this Comment On October 31, 2013, at 10:56 PM, gtahot wrote:

    I'm sure it will go back up, it actually makes great soda(I think it makes a better diet cola than my go-to soda drink diet coke). I'm a strong believer in the company, though it could certainly be in more retailers than it currently is.

  • Report this Comment On November 02, 2013, at 1:38 PM, tomdickandharry wrote:

    i'm getting killed with 10 1/17/15 $62.50 calls bought at $12.96 - the top of the market - on on 1 October.

    Any ideas on how to make some money until Soda rebounds, of dies, by Jan 2015. Bid/ask is now $6.50/7.20.

    Or should I just dump and take a 50% hit in 30 days?

    tomdickandandharry

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