Sodastreamsmall

Things aren't going well at SodaStream (NASDAQ:SODA) according to Wednesday morning's quarterly report. Sales took a hit and profitability fell even harder for the company behind the carbonated beverage maker.

Revenue fell 13% to $125.9 million during the third quarter as a gain in CO2 refills wasn't enough to offset declines in its namesake soda makers and flavors. EBITDA and net income fell even harder, dropping 28% and 42%, respectively for the quarter. 

The silver lining in the report -- if you had to grasp for one -- is that the market knew this was coming. The stock took a 22% hit on Oct. 7 after SodaStream warned that it would fall short. Preliminary results showed an operating profit of $8.5 million on $125 million in revenue for the period, and SodaStream was able to clock in just ahead of those hosed-down targets.

SodaStream's biggest hit came in the Americas where sales have been sluggish since last year's holiday season. Revenue in the region tumbled 41%, offsetting a 2% uptick in revenue growth in the balance of the world. 

SodaStream 2.0
It's clear that SodaStream is having a problem resonating with its once trendy appliance. It sold 32% fewer soda maker units than it did during last year's third quarter. Flavor sales were off by 8%, but CO2 refills rose by 10%. That last point offers some degree of comfort. Folks may not be buying new SodaStream machines or flavoring them with SodaStream syrups but the 10% uptick in CO2 canisters proves that they continue to be put to use in fizzing up water.

This brings us to a shift in SodaStream's marketing strategy. It is moving away from "soda" in favor of "sparkling water" in its marketing. It won't change its name. There are decades of history in the moniker. However, with consumers swearing off sugary sodas but still sipping carbonated water its tag line will go from "your home soda factory" to "water made exciting."

Another meaty nugget in its Wednesday morning conference call was that it will -- as was suggested in our earnings preview earlier this week -- be shutting down its factory in the disputed West Bank settlement of Mishor Adumim when a larger facility opens next year. This has been a controversial facility given its location, and while it has led to a hearty debate between shareholders it will, at the very least, put an end to the knocks that have resulted in protests and calls for boycotting SodaStream.

SodaStream also touched on the PepsiCo (NYSE:PEP) test that was announced late last week. The "fairly modest" test in the coming weeks of Pepsi Homemade flavors will be limited to the Tampa and Orlando markets in Florida.

"We're pretty excited about the partnership," SodaStream said in the call, but once again tempered the enthusiasm by pointing out that this is a limited trial.

As expected, SodaStream hosed down its outlook for all of 2014 in light of the weak third quarter. It now sees revenue slipping 9% on the year to $562.7 million. EBITDA and earnings will drop roughly 26% and 42%, respectively. This suggests that the holiday quarter will be brutal since revenue through the first nine months is off by just 9%. There's no quick fix, and everything from the shift in marketing to the Pepsi test to global perception of the brand in light of shifting production away from the disputed settlement factory will take some time to play out. 

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