SodaStream International (NASDAQ:SODA) shares are down in 2014. The pricing and cost headwinds during the holiday season hurt its performance leading to weaker and disappointing fourth quarter results as compared to last year. Moreover, its troubles further increased by rising competition after the deal between Coca-Cola (NYSE:KO) and Green Mountain (NASDAQ:GMCR).
SodaStream’s revenue jumped 26% to $168.1 million in the fourth quarter, above analysts' estimates of $167.3 million. Net income was $700,000 versus $7.5 million a year earlier. EBDITDA decreased 31.4% to $8.7 million from $12.6 million in fourth quarter 2012. But, on the other hand, SodaStream increased the sales of its soda maker machines by 27% to 4.4 million from 2012. In addition, sales of consumables grew 25% as a result of 30% growth in gas refill units and a 22% jump in flavored units. This increased the full year revenue by 29% to $562 million as compared to last year.
- Warning! GuruFocus has detected 6 Warning Signs with SODA. Click here to check it out.
- SODA 15-Year Financial Data
- The intrinsic value of SODA
- Peter Lynch Chart of SODA
SodaStream witnessed 16% increase in the revenue growth for America, a revenue increase of 38% for Western Europe, 28% increase in revenue for Asia Pacific and 36% growth in the CEMEA (Central and Eastern Europe, Middle East and Africa) region.
SodaStream expects some of the headwinds for the second half of last year to continue in the first half of 2014. The margins are expected to be pressured by higher inventory level in the retail channel. The company shifted a major part of its inventory from the U.S. to other emerging markets due to less demand in the U.S.
Hence, it incurred costs for reconfiguring its machines. But, the move is expected to prove beneficial in the long run since SodaStream is seeing stronger growth in markets abroad than in the U.S. The massive $260 billion of the global carbonated beverage market is bound to benefit the company in a long run.
SodaStream expanded its growth opportunity by entering into a strategic agreement with Sunny Delight Beverages, a producer of Juice-based drinks, to co-develop SunnyD Tangy original orange, orange-strawberry, and other flavors exclusively for Soda Stream’s home beverage carbonation system. These popular flavors are expected to attract new customers to both brands. This should ultimately end up driving consumer interest in the growing home carbonation category.
SodaStream is on a drive of innovation in all areas of its business, and aims to enhance the user experience through automation and partnerships with other players. The company has announced flavor partnerships with Welch’s Del Monte, Cooking Light, and Skinny Girl In the past few months. SodaStream has also partnered with Samsung to include “powered by SodaStream” tap directly that will allow further market penetration through Samsung’s sparkling refrigerator.
Excluding the effects of currency headwinds, SodaStream expects its revenue to grow approximately 15% year over year along with 11% growth of EBITDA. Net income is expected to increase approximately 3% year over year.
The biggest threat for Soda Stream is from Coca-Cola which is partnering with Green Mountain to re-enter the home soda market by buying 10% of Green Mountain for $1.25 billion. This is a 10-year agreement, under which Green Mountain would use Coca-Cola’s products in the Keurig Cold machine, which is expected to be launched later this year.
Coca-Cola’s wide distribution network would definitely hurt SodaStream in the global market. Apart from having a strong presence in emerging markets such as India, this partnership could be big for Green Mountain.
However, PepsiCo might make a move for SodaStream in a bid to counter Coca-Cola in this market. PepsiCo might enter into a partnership with SodaStream, or take a stake in the company, or even buy it. Going forward, any of these three scenarios could be highly beneficial for SodaStream investors, so they must hold the stock.
Finally, when looking at the valuation of the company, SodaStream looks cheaper relative to its peers with a trailing P/E ratio of 20 and projected earnings CAGR of 28.3% for the next five years. Hence, SodaStream could be a good investment option in the long run.