SodaStream Goes Flat Again

SodaStream (NASDAQ: SODA  ) may have signed up Scarlett Johansson to be its first-ever Global Brand Ambassador over the weekend, but its own financials are lost in translation. 

Shares of the company behind the namesake maker of carbonated beverages moved sharply lower on Monday after warning that its bottom-line results for the holiday quarter will fall well short of Wall Street's expectations. 

SodaStream now sees revenue of $562 million for all of 2013, short of the $567.2 million that was implied by its October guidance. Adjusted net income of $52.5 million and net income of $41.5 million will also be short of the $65 million and $54 million, respectively, that was proposed three months ago. If you back out the first nine months of 2013, the fourth-quarter shortfall becomes even more disastrous.

What went wrong? Naturally, seeing the bottom line being hosed down more than the top line points to pressure on SodaStream's margins. After all, SodaStream's saying that revenue in its holiday quarter rose by just 24%. That's not what investors are used to, but it's not horrible. The real problems here are the product mix, lower sell-in prices, and higher product costs.

The "product mix" remark likely refers to SodaStream selling more of its low-margin starter kits and less of its higher-margin syrups and CO2 refills. We saw this rear its ugly head during the third quarter when flavor sales rose by just 7% -- and declined in the U.S. -- but at least it was bailed out by strong carbonator sales that time. Bulls were hoping that it was just a onetime blip, but clearly it has bled over into the holidays.

Discussing lower "sell-in prices" and "higher product costs" points to a company unable to pass through its rising component costs to retailers. This has been a very competitive holiday shopping season, but that's not enough to excuse SodaStream here. For a company with no legitimate competitor in most of its markets -- including the U.S. -- it's frustrating to see that it doesn't command pricing flexibility.

Yes, this is bad. SodaStream is spilling the beans today because it's presenting at the 16th Annual ICR XChange Conference tomorrow morning. Now it can step into its presentation with its bad hand on display at the table.

SodaStream now has a lot to prove to Wall Street as it hits fresh 52-week lows today. Let's hope it keeps carbonators handy to fizz up the hype now that it's gone flat. With downward revisions coming, let's not mistake the stock for being cheap based on what will soon be obsolete 2014 targets.

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