There's hard money to be made in soft drinks. Just ask SodaStream
The company behind its namesake home carbonation system posted blowout quarterly results this morning. Revenue soared 59% to $66.3 million. Net income may have slipped slightly to $0.28 a share, but it still blew away Wall Street's targets. Analysts were expecting a profit of $0.13 a share on $55.8 million in revenue.
A couple of factors were baked into the thankfully temporary margin erosion. For starters, sales and marketing costs outran top-line growth, as SodaStream expanded aggressively outside of its Western European stronghold. The big stateside push paid off; the 238% revenue spike in the Americas was roughly 10 times greater than its sales growth in Western Europe.
The strong U.S. push helped SodaStream sell 712,000 of its manual water carbonation systems, 85% more than it did during the 2009 holiday quarter. This is welcome news for the future, but it's a margin drag for now. SodaStream's meatier markups come in its CO2 refills, replacement bottles, and soda syrup. Those repeat purchases should pick up at this point. Don't worry. We saw this happen when Green Mountain Coffee Roasters
SodaStream's guidance calls for revenue to climb 25% this year, with earnings soaring by 40%. Earning $18 million on $266.5 million will result in margins expanding again, but analysts will have some tweaking to do on their models.
As a result of its November IPO, SodaStream now has roughly 20 million shares outstanding. The pros were targeting a 2011 profit of $1.10 a share on $249.9 million in revenue. Wall Street will need to lower its bottom-line estimates while jacking up its top-line goals.
The disparity probably explains why the shares popped 4% higher at the opening before turning negative. Mr. Market was initially elated, only to realize that 40% net income growth will mean that SodaStream earns roughly the $0.92 a share it earned in 2010 because of the IPO's dilution. It's also not ideal to see SodaStream sell fewer refillable carbonators than the 2.6 million it cleared during the third quarter.
I'll still take it.
SodaStream's shares aren't cheap by most valuation yardsticks, but this is robust growth in a moribund industry. Dr Pepper Snapple
The next few quarters will be telling for SodaStream. Are the folks that were moved by Bed Bath & Beyond's
Is SodaStream the real deal or a passing craze? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.