Source: SodaStream.

Just like that, SodaStream (NASDAQ:SODA) is going back under the microscope. The world's leading player when it comes to in-home carbonation reports first-quarter results tomorrow.

The past couple of releases haven't been very favorable. Two quarters ago, it was weak syrup sales raining on what would have otherwise been a solid report. Flavor sales rose just 7% worldwide -- declining by nearly 3% in the U.S. -- leading investors to wonder if the SodaStream machine was going the way of the margarita or ice cream maker and collecting cobwebs in the attic. Stifel Nicolaus downgraded the stock on the report.

Three months ago, things got even worse. Flavor sales bounced back nicely, but margins were crushed. Earnings tanked, leaving SodaStream with a barely profitable quarter during the potent holiday season.  

The reasons behind the squeezed margins are worth revisiting as we approach what SodaStream has warned should be another period of meager profitability. The holidays proved to be a perfect storm, particularly in the U.S., where retailers demanded markdowns during a competitive holiday shopping season. SodaStream caved in with price cuts, but even that wasn't enough for retailers to work through their inventory levels. It wound up having to shift tens of thousands of starter kits to lower-margin outlets including HSN. It went through costly repackaging efforts to send some unsold systems in the U.S. to Canada. It reconfigured another 450,000 unsold beverage makers as Mega Packs, but that had mixed success. 

In short, the holiday quarter was a mess for SodaStream. The first quarter was likely even more challenging as it dealt with lingering margin pressures and retailers that may have a glut of unsold merchandise. The real key will be SodaStream's guidance. Three months ago, it expected growth to decelerate in 2014, targeting revenue and earnings to climb 15% and 3%, respectively, for the entire year. Given the fluid market conditions -- no pun intended -- revising those projections higher or lower three months later wouldn't be a surprise. 

Naturally, the financials won't be as important if we somehow get some clarification on the chatter that escalated last month about a potential investor. If the report is bad and Starbucks (NASDAQ:SBUX) -- or any other beverage giant -- is about to take a stake in SodaStream, that would be as good a time as any to make it official. Whether it's misdirection or validation, the market doesn't want to deal with a third consecutive problematic quarter out of SodaStream without knowing that there's a potential payoff. The stock has already shed nearly half of its value since peaking last June, but it doesn't mean that it can't keep heading lower. That would change with a Starbucks investment.

The world's largest soft drink company acquired a 10% stake in a company that's about to put out a competing platform, and this morning it raised its stake to 16%. There are battle lines being drawn in the in-home carbonation market -- any other beverage giant may want to take sides by warming up to SodaStream. Starbucks was one of the three names brought up by Israel's Calcalist, the business daily that initially broke the story about a beverage titan negotiating a minority stake in SodaStream. If it's more than wishful thinking, it would be the one thing that saves SodaStream from a bad report.

The clock is ticking, and SodaStream could make all of the scenarios moot if it surprises the market and actually produces a good report.


Rick Munarriz owns shares of SodaStream. The Motley Fool recommends and owns shares of SodaStream and Starbucks. 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.