SodaStream (NASDAQ:SODA) recently announced surprisingly strong first-quarter earnings as sales growth sped up to a 25% pace and profitability improved. The seller of at-home carbonated beverage machines is benefiting from a long-term trend of rising global demand for sparkling water.
CEO Daniel Birnbaum and his executive team were happy with the results, but they have more aggressive plans in place aimed at building on the positive operating momentum. Management discussed those initiatives during their latest conference call with Wall Street analysts.
Below, we'll look at a few highlights from that chat (all quotes are Birnbaum's).
Keeping the momentum
The positive momentum we experienced throughout last year carried into 2018 as revenue increased double digit for the ninth consecutive quarter and we achieved record first quarter revenue and profitability.
Sales growth accelerated from the 20% pace that SodaStream managed in the holiday quarter. This quarter's 25% revenue spike wasn't quite as strong as it looked, though, as foreign exchange rate shifts contributed $12 million of the $28 million in additional sales that the company earned.
Still, SodaStream notched several operating and financial wins in the period, including increased cannister refill sales and record gross and net profit margins.
Growth was broad based, as our three largest regions increased double digits year over year with Western Europe up 22%, the Americas up 39%, and Asia Pacific up 28%.
Standout markets included Germany, where revenue expanded at a double-digit pace for the 25th consecutive quarter. Surging demand in Canada combined with healthy sales in the U.S. to push revenue up 39% in the North American segment. Australia and Japan held their position as two of SodaStream's strongest growth markets, too, and Asia Pacific sales were up 28%.
Struggles in France
The transition to direct distribution in France temporarily disrupted our selling early in 2018, but we're confident that we can accelerate growth in the strategically important market under the direction of our European leadership team.
SodaStream reported a 2% decline in machine sales, which marked a sharp turnaround from the prior quarter's 25% spike. The slump was mainly due to the company's acquisition of its distributor in France that management believes caused a temporary sales disruption in the key market. Excluding the country, sparkling water machine sales were up 9% during the period.
The growth plan
Our focus is on generating consumer demand [through]; one, new product introductions that further enhance the user experience; two, retail expansion to be more easily accessible to our consumers; and three, building brand heat to drive purchase and user loyalty.
SodaStream is introducing a new automatic carbonation machine in the coming weeks, and consumer acceptance of the product will have a big impact on 2018 results.
Executives have aggressive plans for retail expansions, too, including the launch of an e-commerce platform in the U.S. that adds to its home delivery capabilities for carbon dioxide canister refills. These initiatives will be supported by marketing plans aimed at building SodaStream's base of engaged customers that currently sits at 8.3 million around the world.
A brightening outlook
Based on our first quarter results we're raising our full year guidance. For 2018, we're now forecasting revenue to grow approximately 15% compared to 2017, up from our previous forecast of approximately 12% and gross margin is now expected to be approximately 55%.
SodaStream's upgraded sales guidance predicts a slight acceleration over last year's result. Yes, a big piece of that increase is due to exchange rate shifts. However, executives also raised their earnings target and see profitability ticking up to 55% of sales rather than holding steady at 54%.
Hitting the sales target would set a new record for the company roughly three years after SodaStream launched its risky pivot away from soda and toward sparkling water. The company is already in a far better financial position than it was before its sales collapse, and that earnings posture should continue to improve in 2018.