Heading into this week's earnings report, SodaStream (NASDAQ:SODA) investors showed growing optimism that the at-home beverage machine company would sustain its market-beating ways. The 45% stock price jump so far in 2017 reflected high hopes that its turnaround strategy is gaining steam just ahead of the critical holiday shopping season.

SodaStream didn't disappoint, delivering a slight growth slowdown on Wednesday that still showed a solid expansion in both sales and earnings.

Here's how the headline numbers held up against the prior year:

 Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$131 million

$119 million

10%

Net income

$14.4 million

$7.8 million

84%

EPS

$0.64

$0.37

73%

Data source: SodaStream's financial filings.

What happened this quarter?

The company experienced a healthy boost in both machine and carbon dioxide refill sales. Meanwhile, increased prices and falling costs helped generate a near doubling of profits.

A glass of sparkling water, garnished with a lime.

Image source: Getty Images.

Highlights of the quarter included:

  • SodaStream's sales increase was both slower and less broad-based than in the prior quarter. In fact, the 10% boost was mostly thanks to gains in Western Europe. Yet the U.S. segment also contributed to growth with an 8% increase, compared to 12% last quarter.
  • The company sold 35% more beverage machines, which pushed revenue higher by 20% in that segment.
  • Gross profit margin improved by over two percentage points to 53% of sales thanks to rising production efficiencies and increased sales of the premium Fizzi machine.
  • Operating margin jumped to 13% of sales from 8% a year ago as SodaStream did a good job holding down expenses.
  • Carbon dioxide refill sales rose 10% to over 8 million. That gain marked a slight slowdown from the prior quarter's record 12% spike, but still implies robust machine usage among SodaStream households.

What management had to say

"The strong momentum that we've recently experienced building a global sparkling water franchise continued into the second quarter," CEO Daniel Birnbaum said in a press release. Management said the spike in machine sales was a demonstration that "the compelling benefits of our home carbonation system are resonating with an increasing number of consumers worldwide." Rising refill volumes, meanwhile, are "a great indication that our user base is active and growing," Birnbaum said.

On the financial side, executives highlighted how production changes they've made are increasing operating efficiency. "The significant improvement in profitability underscores the benefits of our enhanced manufacturing and expense structure and the power of our business model," management noted.

Looking forward

The improving operating trends are giving Birnbaum and his team confidence that their new sparkling water brand focus will support long-term market share growth. Looking ahead, management plans to achieve a balance between rising household penetration and user retention. That makes machine sales and refill volumes the two key operating metrics to watch.

The holiday season can be volatile for this business due to the risk that retailers will scale back their purchases or delay them until just before the shopping crush is set to hit. The good news for investors, though, is that SodaStream has a far slimmer cost infrastructure today than it did in 2014 and 2015 when a surprise sales slump sent earnings diving. In contrast, the company is entering its peak selling season this year with improving profitability and a healthy sales growth pace.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of SodaStream. The Motley Fool has a disclosure policy.