Once again, another blowout quarter by SodaStream (SODA +0.00%) was squandered.
The company that has turned tens of millions of consumers into home-based makers of soft drinks posted another fizzy fiscal performance last week. The market didn't care. Shares of SodaStream slumped 7% last week, dropping all three trading days since Wednesday morning's report.
Where did the pop star go wrong? Let's go over three potential shortcomings.
Profitability is just a number
Some sites claim that SodaStream missed Wall Street's profit target. Bottom-line trackers were expecting profitability to climb from $0.32 a share a year earlier to $0.39 a share this holiday quarter. SodaStream's reported profit of $0.36 a share did fall short, but the company's guidance and Wall Street's forecasts are based on adjusted earnings. SodaStream actually earned $0.45 a share on that basis.
How do we know that analysts are basing their estimates on the adjusted figure? Well, a year earlier SodaStream's reported profitability was just $0.26 a share. The adjusted figure of $0.32 a share is what the profit trackers were pitting the company against last week.
No monster under that bed.
Do the sequential slide in consumption
Another possible sticking point rests in the sequential dip in consumables. SodaStream did sell a record 1.1 million starter kits on the way to a 55% surge in revenue, but the number of carbonators clocked in flat sequentially and soda flavor bottles actually dipped between the third and fourth quarters.
Oops? Nope.
This is a seasonal business. Folks don't slurp down as much soda when the weather starts to get chilly. Don't just take it from SodaStream. Coca-Cola (KO 0.09%) went from posting $12.34 billion in net operating revenue during last year's third quarter to just $11.46 billion during the fourth quarter. On a year-over-year basis, SodaStream's CO2 refills and syrups were up 26% and 60%, respectively.
The actual soda maker systems may have spiked to a new record given the holiday period, but it will be later in the year when consumers are truly getting busy with the fizzy. There was a slight sequential uptick in consumables in 2011 between the third and fourth quarters, but the number of carbonators declined sequentially between the third and fourth quarters of 2010.
There's no monster under that bed, either.
View from the carbonated crow's nest
SodaStream's guidance calls for revenue and adjusted earnings to climb 25% in 2013.
This may have seemed problematic on the surface. Analysts were targeting growth spurts of 20% in revenue but 28% in earnings per share.
Was SodaStream's outlook mixed? No. Analysts were expecting a profit of $2.74 a share in 2013 based on 2012 starting lines that proved to be woefully short of reality. SodaStream generated far more in adjusted earnings and revenue than Mr. Market was expecting, and 25% growth on the bottom line in 2013 will actually be well north of $2.74 a share.
In fact, in just three trading days since SodaStream's report, the average analyst profit target has increased from $2.74 a share to $2.78 a share. Wall Street's revenue forecast has gone from $510.2 million to $522.7 million in those same three days, and both targets should continue to inch higher as analysts update their numbers to match SodaStream's own outlook, which would be $545.4 million in revenue and closer to $3 a share in profitability.
Looks like we have a monster vacancy under this particular bed, too.
It's going to be a good year for SodaStream
The market got it wrong last week, but that only makes things more intriguing now.
SodaStream is now fetching just 15 times next year's projected earnings. PepsiCo (PEP +0.32%) and Coca-Cola fetch multiples of 16 and 17 times, respectively.
It's not fair to compare SodaStream to the two beverage giants that have been consistent producers for decades, but keep in mind two important distinctions:
- SodaStream is growing substantially faster. Analysts see double-digit growth at SodaStream. The same can't be said for the pop stars behind Coke and Pepsi.
- Analysts have actually been lowering their 2014 targets on Coke and Pepsi since their quarterly reports this month. Meanwhile, analysts have actually been jacking up their projections for SodaStream.
The healthy valuation isn't the only reason to warm up to the maker of cool soft drinks. SodaStream aired its first Super Bowl commercial this month. It recently announced a deal with Samsung to incorporate its carbonation system in a high-end refrigerator that will dispense sparkling water. Supermarket distribution is being tested to broaden the accessibility of SodaStream syrups and carbonators.
SodaStream is also making friends in high places. A deal with Kraft Froods introduced the food giant's lemonade and diet drinks as SodaStream brands last year, and Campbell Soup will see V8 Splash and V-Fusion hit stores as SodaStream flavor options this year.
SodaStream didn't get a lot of respect last week, but it's been generating results -- and that's what the market ultimately rewards over time.
