Three years into its rebound plan and things have never looked better for SodaStream (NASDAQ:SODA). Its pivot to a focus on sparkling water has returned the company to healthy sales growth while cost cuts powered record profitability in 2017.
In a recent conference call with Wall Street analysts, CEO Daniel Birnbaum said he sees room to expand on those gains in 2018, including by taking on global water giant Perrier on its home turf. Below are a few highlights from that chat (all quotes are Birnbaum's).
The fourth quarter ended up stronger than we initially expected as our strategies to expand household penetration and increased usage of our home carbonation system yielded very positive results.
Sales growth improved to a 20% pace in the holiday quarter compared to 13% in the third quarter and 10% in the second quarter. The company sold 25% more sparkling water machines, which allowed overall revenue to climb 14% for the year and edge past management's 13% target.
Gross margin increased 140 basis points to 53.8% in the fourth quarter. It is notable that this improvement was achieved while the sparkling water maker share in the revenue mix was 44%, 300 basis points higher than Q4 last year.
SodaStream enjoyed improving gross profitability even though the sales mix tilted heavily toward new machines that generate lower margins than its flavorings and carbon dioxide canister refill sales. That success is a testament to the company's improved manufacturing efficiencies and higher selling prices.
Our product, marketing and distribution strategies are driving expansion of our user base in our largest region and we still see a significant run rate for future growth.
Western Europe stood out by delivering more than half of SodaStream's revenue gain for the quarter on booming demand in Germany and easily offset sluggish growth in France. Sales in Canada surged, too, and the U.S. segment posted decent gains with help from an effective advertising campaign.
A big user base
Our user base now stands at an estimated 12.5 million households who collectively prepared and consumed 1.8 billion liters of carbonated beverage with our system during 2017, 90% of which was non-flavored sparkling water.
SodaStream posted an 11% increase in canister refill sales, which is evidence of both a growing user base and continued active machine usage by existing customers. The expansion solidified the company's position as the world's biggest water brand, by volume.
Plans for 2018
Looking ahead, we remain focused on executing our strategies, aimed at increasing household penetration, improving retention and driving long-term growth.
Management's growth plan includes a new one touch machine launch set for the second quarter of 2018 and a fresh lineup of flavoring options aimed at getting that segment back to growth.
SodaStream has aggressive plans to increase distribution. Its recent acquisition of its French distributor, for example, will allow it to compete more directly with sparkling water giant Perrier in its home market. Executives are hoping that new focus will help SodaStream bring its current 4% penetration rate closer to the double-digit rate it enjoys in some of its best markets.
Overall, sales are predicted to rise 12% in 2018, which would mark its first return to record revenue since the turnaround plan launched in 2015. Its far higher profitability, meanwhile, should result in operating income of about $89 million, or 80% above its previous record set in 2013.