Shares of SodaStream (SODA) opened 5% higher after pouring out a better-than-expected quarterly report this morning. Landing ahead of Wall Street's top- and bottom-line targets is encouraging, but there's going to be a fair amount of skepticism among investors who've been burned by the maker of the once-trendy carbonated beverage makers.
After all, the actual report isn't all that special. Revenue clocked in at $112.9 million, 11% below the prior year's holiday quarter. Adjusted earnings per share for the quarter fell sharply, going from $0.35 to $0.24 over the past year.
This is the kind of performance that normally wouldn't send a growth stock -- or even a former growth stock -- higher, but let's go over why the market sees fizz in a mostly flat report.
1. It's all about expectations
A double-digit percentage decline in year-over-year revenue growth isn't pretty, but analysts were holding out for a 13% plunge in sales. SodaStream's 11% drop looks good with that in mind. The beat is even better on the bottom line. Wall Street pros were holding out for adjusted net income to be cut roughly in half, to $0.17 a share.
2. Revenue held up better than you think
SodaStream's revenue was nothing to write home about, but it's even better than the 11% drop would seem to suggest. Adjust for currency fluctuations -- a necessity given SodaStream's broad geographic reach -- and revenue slipped a mere 2%.
3. Europe is back
SodaStream's been in Western Europe a lot longer than the U.S., and that decades-long presence matters in some of its deeply penetrated markets. Western Europe accounts for more than half of SodaStream's business -- 56% on a reported basis, and 57% on a currency-adjusted basis -- making the resumption in growth there significant. Western Europe revenue rose 6% after accounting for fluctuating foreign currencies.
4. Folks are still using the soda makers
We've been seeing starter systems and flavor bottles decline for a couple of years now, but we're still seeing growth in the CO2 canisters that help turn flat water into a sparkling beverage. There was a 7% year-over-year increase in the number of CO2 refills sold by SodaStream, and that's important. It debunks the naysayers who claim SodaStream devices are collecting dust in attics everywhere.
5. SodaStream survived the initial Keurig Kold scare
This is the first full quarter in which SodaStream is up against Keurig Green Mountain's (GMCR.DL) Keurig Kold, and it held up resiliently well. To be fair, Keurig Green Mountain didn't do itself any favors by pricing Keurig Kold -- and its flavor pods -- out of a chance at mainstream success. However, Keurig Green Mountain hit the market partnered with some of the world's largest soft drink companies. It didn't help.
SodaStream still saw its stateside sales post another double-digit percentage drop, but in terms of total revenue, this was actually SodaStream's best year-over-year performance since the second quarter of 2014. SodaStream still has a way to go before we can call this a turnaround, but there are some signs of life starting to bubble up to the surface.