SodaStream After Earnings: Buy, Hold, or Sell?

The company is not out of the woods in the U.S. yet, but the latest earnings report from SodaStream is showing encouraging signs for the future.

May 16, 2014 at 10:00AM

Soda

Source: SodaStream.

SodaStream (NASDAQ:SODA) reported better-than-forecast earnings on Wednesday. However, the company is still facing serious difficulties in the U.S. With Coca-Cola (NYSE:KO)  and Keurig Green Mountain (NASDAQ:GMCR) joining forces to compete in the home-soda business, things could get much more exciting in this key market in the medium term. Is SodaStream a buy, hold, or sell after the recent earnings report?

A mixed bag
SodaStream reported really dismal performance in the U.S. during the last quarter of 2013, so investors expected continued difficulties in that market during the first quarter of 2014. This was in fact the weakest spot in performance: Sales in the U.S. fell by 28% versus the first quarter in 2013, as retailers are still working on reducing their excess inventories.

Performance was much stronger in the rest of the world, though. Sales in Western Europe increased by 17%, revenues in the Asia-Pacific region grew 28%, and Africa delivered an increase of 34% in sales versus the prior year. All in all, total sales were roughly flat at $118.2 million versus $117.6 million in the first quarter of 2013. This was in line with analyst's estimates of $118 million for the quarter.

Falling profit margins had a big negative impact on profitability, and earnings declined from $0.57 per share in the first quarter of 2013 to $0.08 per share. This was widely expected by analysts, though, so earnings per share came in considerably above estimates of $0.01 per share on average.

On a brighter note, carbonator sales were particularly strong during the quarter, with an increase of 22% in unit sales to a record 5.8 million units.

Carbonators sales are usage-driven, and sales of refills don't vary much during the holidays, so healthy demand in that category could be indicating that overall demand weakness is mostly due to problems during the last quarter in 2013 and the remaining excess inventory. As long as consumers continue to put their machines to good use, SodaStream should be able to overcome its problems over the coming quarters.

Management expects sales during 2014 to increase by 15% versus 2013, and EBITDA is expected to grow by 11%, while EBITDA excluding foreign exchange fluctuations is forecast to increase by a much stronger 25% year over year. SodaStream expects net income to grow by 3% during the current year.

Forward-looking guidance is clearly signaling an improvement in the remaining three quarters of 2014, so management seems to believe that SodaStream will be able to overcome its difficulties in the U.S. in the medium term.

Moving forward
Interestingly, the alliance between Coca-Cola and Keurig Green Mountain to enter the home-soda industry could actually be a positive factor for SodaStream in terms of improving performance in the U.S.

Coca-Cola Classic and Diet Coke are the two most consumed soda brands in the U.S., and Coca-Cola has enormous firepower to invest in marketing and advertising. Keurig Green Mountain has been a pioneer in the home-coffee category, so the deal between Coca-Cola and Keurig Green Mountain means that two popular and recognized brands will be entering the home-soda industry.

This will obviously represent a serious competitive challenge for SodaStream, but it will also provide validation for the home-soda industry as a whole and attract customers' attention to the alternatives in the space.

Besides, Coca-Cola will need to be careful in order to avoid cannibalization and conflicts of interests with its bottlers while entering the industry, so the company will most likely compete in the high end of the pricing spectrum. In addition, consumption of traditional sodas is under pressure lately, as consumers move toward healthier alternatives.

If SodaStream can successfully position itself as a lower-cost and healthier alternative to Coca-Cola in the home-carbonation market, the company could actually benefit from the partnership between Coca-Cola and Keurig Green Mountain.

Foolish takeaway: Buy, hold or sell?
Falling sales in the U.S. are still a material reason for concern, but strong international performance and growing carbonator revenues are a healthy sign in terms of overall demand strength for SodaStream. While Coca-Cola and Keurig Green Mountain will represent a considerable competitive challenge for SodaStream, they will also attract attention to the industry, and SodaStream may end up benefiting from this move if it plays its cards well.

SodaStream is clearly a risky investment alternative, but upside potential is also quite high if things turn out as expected. For investors who can handle the short-term uncertainty, a long-term position in SodaStream may outweigh the risks.

This innovative company can make you rich
Investing in innovative companies can be enormously profitable. If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Andrés Cardenal owns shares of SodaStream. The Motley Fool recommends and owns shares of SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola.  It recommends Coca-Cola and Keurig Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers