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SodaStream International Ltd. Earnings: Worse Things Than Flat

By Rick Munarriz - May 6, 2015 at 10:00AM

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The leader of in-home carbonation suffers a global collapse.

A soda sipper's worst fear is that a once-fizzy carbonated beverage has gone flat, but we all know there are far worse things than a flat performance. Case in point: SodaStream (SODA) on Wednesday posted another quarter of shrinking sales and asterisk-laden profitability.

The Israeli-based company that for once better and now worse is the leader of in-home carbonation had a rough start to 2015. Adjusted revenue plunged 23% to $91.3 million in the quarter, well below the $100.9 million that analysts were targeting.

The waning popularity that began in the U.S. in late 2013 and trickled into Europe late last year is now a global epidemic. All four of SodaStream's geographical regions -- Western Europe, the Americas, Asia-Pacific, and everywhere else -- suffered year-over-year revenue declines in the double-digits on a percentage basis. Its largest market -- Western Europe, which accounts for more than two-thirds of SodaStream's sales -- held up the best, but still slid by 13%. Foreign currency exchange rate fluctuations weighed on the regional breakdowns, but it's still ultimately another failure for the former market darling.   

Once again we're seeing fading sales of SodaStream's carbonated-beverage makers and flavored syrups. The only element of SodaStream's business that has held up through the malaise is its CO2 refills, but even those carbonators looked mortal in the quarter by growing just 4% over the past year. Growth in the refills category is proof that folks are still using the soda makers. They're not merely collecting dust in the attic. The challenge here is to get more new customers who will make the initial investment and then ideally do more than just make unflavored sparkling water.

The news gets better as we work our way down to the bottom line. Adjusted earnings clocked in at $0.40 a share, well ahead of both the $0.08 a share that SodaStream rang up a year earlier and the $0.03 a share that Wall Street pros were bracing for on Wednesday. However, SodaStream's adjusted figure excludes restructuring charges as the company discontinues some product lines and shifts its production.

Things could have been worse. The company held up marginally better than it did during the horrible holiday quarter when sales plunged 25% from the prior year, with sales in the Americas nearly shaved in half. However, SodaStream is also coming up against friendlier comparables through 2015 after a rough 2014. 

SodaStream's ability to turn things around later this year will rest on its marketing shift gamble. Management knows folks aren't consuming sugary sodas as much as they once did, and it's trying to position its product as a maker of healthy and fresh sparkling water. Swapping fun for functional could be a hard sell, but the trends don't lie. Besides, there's still some revelry to be pitched when its cocktail-centric SodaStream Mix hits the market.  

For now, SodaStream's goal must be to find a way to stop the year-over-year declines in sales. Let things even out. Let things be flat. Yes, there are worse things for a soda sipper -- or in this case a SODA investor -- than consuming something that has gone flat. 

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