Get ready, SodaStream International Ltd. (SODA) shareholders, because I think your favorite at-home soda maker is about to turn a corner.
SodaStream is weathering a temporary lull in U.S. sales. Source: SodaStream.
SodaStream just reported solid first-quarter results yesterday, beating expectations on both the top and bottom lines. But a 28% drop in U.S. sales heavily offset double-digit growth in every international segment, leaving revenue to rise a minuscule 0.5% over last year. Meanwhile, gross margin continued to plunge thanks both to unfavorable foreign currency exchange rates and higher-cost soda makers.
And compounding investors' worries was yesterday's news that Coca-Cola is increasing its stake in Keurig Green Mountain. If SodaStream was looking to extend its head start in the space prior to the planned fiscal 2015 launch of Keurig Green Mountain's own at-home carbonation platform, this quarter appears to have done it no favors.
Unsurprisingly, the market responded to SodaStream's report with a "meh," leaving shares to open lower before waffling between positive and negative territory all day yesterday.
But not everything's as bad as it seems right now. SodaStream's U.S. weakness, for example, was primarily thanks to the extended negative impact of soda maker sell-in after its terribly difficult holiday quarter. And that's the result of SodaStream's U.S. customers poorly managing soda maker inventory in their efforts to keep pace with retail consumers' demand.
About that corner...
Of course, this also means those customers had overestimated just how quickly SodaStream's systems would fly off shelves in past quarters, but it doesn't mean consumers aren't still buying -- and using -- SodaStream's lucrative razor-and-blades-style platform. To be sure, though overall soda-maker starter kit sales fell 22% year over year in Q1, unit sales for CO2 refills and flavors increased 22% and 9%, respectively, over the same period.
SodaStream wants to extend its lead in at-home carbonation prior to Keurig Green Mountain's entry. Source: SodaStream.
What's more, while management did say the inventory issues are expected to continue through the second quarter, SodaStream reiterated guidance for 2014 revenue to increase approximately 15% over last year. Translation? Once retail inventory finally normalizes, SodaStream's revenue should accelerate in the second half of the year.
Then again, that 15% top-line growth is also only expected to translate to a 3% increase in net income, as SodaStream plans to adjust its "marketing and selling strategies to reaccelerate soda maker demand and further increase household penetration." So shareholders will want to listen closely to management over the next few quarters to see if those marketing efforts are yielding the desired results.
Over the long term, however, I see no reason for SodaStream not to continue to thrive. Remember, SodaStream has already outlined lofty -- albeit, I think, achievable -- goals of reaching an annual revenue run rate of $1 billion by 2016 and at least 10% household penetration in every country it enters. If it can come anywhere near those targets, patient shareholders will be breaking out the bubbly.
