Why Wall Street Is Clueless About SodaStream's Q3 Results

Shareholders of SodaStream International (NASDAQ: SODA  ) may have been caused undue worry by Wall Street after the company posted third-quarter earnings recently. Various pundits struck fear into the hearts of investors by quickly pointing out slowing flavor sales in the United States after the report. The problem is, SodaStream results don't accurately reflect what's happening with its products on the store shelves in the U.S.

While flavoring sales at the company were down 2.6% in the U.S., sales for flavoring at retail locations were actually up 53% for the quarter. In all actuality, and contrary to the pundits, it appears the U.S. consumer is slurping up flavoring at an alarming rate. So why the huge disconnect between the company's results and retail activity?The confusion around SodaStream's results centers around two industry terms: sell-in and sell-out, and retail inventory management. 

SodaStream's results are expressed as sell-in numbers, while actual retail activity is referred to as sell-out, and is provided by the NPD Group. NPD has reported that SodaStream third-quarter segment sales were up 157% for CO2 canisters, 53% for flavoring, and 12% for soda machines at retail locations. While these numbers are approximations, they're regarded as being very accurate, and NPD is the gold standard in the industry. As you can see, the company is performing admirably pre-holiday in all categories; the decreased sell-in numbers reported by SodaStream are a result of poor inventory management by a few of the company's customers. 

In the video below, Motley Fool analyst Blake Bos explains how sell-in and sell-out work, dives into the U.S. results, and explains why he thinks Wall Street has fallen off its rocker.

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  • Report this Comment On October 31, 2013, at 5:24 PM, Ostrowsr wrote:

    Wall Street is just taking advantage of the Fed downdraft effect that comes after their meeting. The analyst stories add to the effect by highlighting any possible negative they can find, even when it's not really a negative. And for a few days Wall Street merely reduces buying as retail investors sell due to these reports. The lower prices are bought a couple days later. Do we all think that experts don't know how to "buy low"? Sodastream consensus target is around $68.

  • Report this Comment On November 01, 2013, at 3:33 PM, clean49494 wrote:

    I understand what you're saying about the sell-in and sell-out figures on "flavorings." It's good news for SODA and completely makes sense.

    Conversely though, the opposite seems to be the case for "starter kits" and that would be bad news. If I'm not mistaken, it appears (in the latest quarter) sell-in for starter-kits was a healthy 27%, but sell-out was only 12%. Are these figures correct? And, if so, is there cause for concern?

  • Report this Comment On November 01, 2013, at 6:06 PM, TMFBos wrote:

    @ clean49494

    Well there's not an easy way to tell, except to wait and see. 12% is lower than I would like to see for a company trying to increase market penetration, but then again it's compared to last quarter when retail locations increased by 80%. So it's harder to increase off a larger base in the quarter before the holidays, but I'm not sure that's a good rationalization to the slower growth rate.

    I need to see how the sell in an sell out numbers shape up for the holidays, as that's their biggest quarter in the US, and then I'll have an opinion on that matter. Right now deriving conclusions from starter kit data is "fuzzy". The consumable sales, in theory, shouldn't be as lumpy from quarter since customers continually consume them. I'll be watching starter kits and asia-pacific results going into the next quarter.

    Thanks for bringing this up, I should have included it in the article. Next quarter I won't make the same mistake.

    Cheers,

    Blake

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