This morning, SodaStream (SODA) posted its weakest quarter since going public in 2010. Revenue inched 0.5% higher to $118.2 million, and margin pressures forced net income to plunge 85% to $1.8 million, or $0.08 a share. As bad as that sounds, it's actually comfortably ahead of the $0.01-a-share profit on $117.96 million in revenue that Wall Street was targeting, but no one will pat SodaStream on the back after that kind of financial performance.
It's a tale of two markets at SodaStream, with weakness continuing in the U.S. during the period offset by robust sales overseas. Revenue in the Americas tumbled 28%, barely overcome by a 20% surge everywhere else. This isn't necessarily a shock to anyone who had followed the stateside deterioration during last year's fourth quarter, when SodaStream had to scramble to unload excess inventory at U.S. retailers.
"The holiday quarter was a mess for SodaStream," I warned yesterday. "The first quarter was likely even more challenging as it dealt with lingering margin pressures and retailers that may have a glut of unsold merchandise."
Don't assume that consumers in the U.S. are buying 28% fewer SodaStream products. We're talking about retailers scaling back on their orders to clear out more of the soda makers, flavor bottles, and CO2 tanks collecting dust on their shelves since the holidays. It was a similar situation at Apple, where the 16% drop in iPad sales was actually just a 3% decline in sell-through to consumers during the same three months. This doesn't mean that we can excuse SodaStream or Apple for the double-digit declines. If anything, it points to the inflated revenue recorded during the prior quarter.
Thankfully, it seems as if this will be the bottom. SodaStream is targeting top-line growth in the mid-single digits during the current quarter, accelerating dramatically during the latter half of the year because it is sticking to its 15% revenue growth guidance for all of 2014. It also expects positive growth in the U.S. for the balance of the year, and a good push in that direction will come this summer as Wal-Mart adds 20 feet of incremental shelf space for SodaStream products at a prime store location for three months. That's a pretty big score for SodaStream. It was two years ago this month that SodaStream pushed its products into the world's largest retailer. Even if this is a temporary expansion to coincide with the peak soda-sipping summer season, it's comforting to know that at least one stateside distributor will be ordering more of its merchandise in the coming months.
This doesn't mean that investors are cheering this morning. For starters, analysts were forecasting sales growth of 15% for the current quarter, so an uptick in the mid-single digits isn't going to cut it. This also puts a lot of pressure for growth to clock in north of 25% during the second half of the year to hit that 15% outlook for all of 2014. That's not going to be easy, especially after problematic elements in each of SodaStream's past three quarterly reports. SodaStream still has a lot to prove.
