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SodaStream's Results Signify the Company Can Be a Good Investment

September 22, 2014 | About:

The maker of home drink-carbonation SodaStream (NASDAQ:SODA) once again delivered exciting numbers for the second quarter that topped analysts' estimates on both top and bottom lines. Its performance was driven by record gas refills and strong growth in flavor and soda maker units that grew 20%, 21%, and 4%, respectively, in the Western Europe, Asia Pacific, and CEMEA regions. These regions represented approximately 70% of its total revenue in the second quarter.

However, SodaStream continues to see softness in the United States as the demand creation plans failed to drive expected growth for its SodaStream product portfolio in the Americas, and most retailers were left with excess inventory during the quarter despite the holiday season.

The Israel-based company reported revenue of $141.2 million, an increase of 7% from $132.4 million in the same quarter a year earlier, beating analysts’ estimates of $140.56 million for the second-quarter. Its net earnings of $0.43 per share were a good beat on the $0.31 earnings per share estimated by the analysts for the quarter.

Potential partnerships to gear up progress in the European Markets:

SodaStream looks strong to acquire a great market share in the European markets as the company started nurturing strategic partnerships with leading manufacturers and local leaderships across Europe, Asia Pacific and CEMEA regions that should advance its progress in these regions. SodaStream has developed a healthy relationship with Samsung that continues to enlarge supply of its carbonated refrigerators, backed by SodaStream in the new markets across Europe such as Germany, France, U.K., Austria, Sweden, Finland, Denmark, Norway, and newly included Russia and Slovakia.

Additionally, the company remains on track to launch its flavored partnership with Del Monte in European markets, with an innovative line of high-class, rich tasting flavors that are already available for consumers in the U.K and Italy. Meanwhile, the company is also planning to roll over KitchenAid Soda Makers, supported by SodaStream in Western Europe and Australia in the remaining quarters.

SodaStream had started shipping in large numbers of this eye-catching product to the United States and Canada during the second-quarter that started gaining positive market traction, and the company expects this product to enhance its growth in the European markets.

Soda Stream is also expected to benefit largely from its fresh progressive partnership with Groupe SEB, a leading producer of small domestic appliances and cookware under several ground-breaking brands such as All-Clad, Krups and Tefal.

SodaStream will begin supplying gas for their Tefal home soda-maker that the company decided to launch in European markets in the second-half of the year. SodaStream considers Groupe SEB as a potential investment to strengthen its position in Europe, enhancing its portfolio of gas franchise. These prospective partnerships are expected to possibly drive growth for its fast-growing home carbonated beverages going forward.

Innovative products on the cards with rich consumer messages:

SodaStream is aggressively engaged in developing various new innovative products such as new flavors that enclose healthier ingredients, together with natural sweeteners like Stevia and Monk fruit. SodaStream has also newly launched SodaStream Free, its fresh line of flavors in selected European markets that is evenly sweetened and contains just 40 calories per eight ounces - less than half of the calories in a comparable portion of Coke.

SodaStream has observed tremendous response from the consumers from these selected markets and the company plans to extend this product to other European markets, and in the United States in the second half of the year that should drive its growth in the future. For example, the SodaStream Free has fetched a significant market share of 20% from its flavor sell-through volume within just eight weeks of launching in Finland at retail.

SodaStream is also focusing on effectively communicating key health and wellness benefits to potential customers and leveraging its existing and new point of distribution to fuel up accessibility for its products. The company is promoting this awareness in Germany with a No Schlepping campaign, and in Finland with environmental messages along with aggressive innovative initiatives such as point of sale material coupled with creative marketing plans.

The company remains on track to expand its distribution networks as it plans to roll out a number of additional retailers in premium grocery and convenience channels that should assist the company adding a force to its SodaStream status as the premium, yet accessible healthy lifestyle choice in the beverage category.

Apart from these, SodaStream expects its sales to bounce back in the United States in the long-run as the company remains committed to producing healthier, natural, less caloric flavors, and SodaStream is the solutions products that should provide the most compelling health and wellness benefits to Americans.

SodaStream also expects its recent launch of seasonal hotspots and compelling products along with various marketing initiatives such as self space, price discount, and new products inclusions inside about 1,500 Wal-Mart stores across United States to deliver positive results in the second-half of the year.

SodaStream is also working aggressively on various shortcomings of its products in the United States such as traditionally packaged soda and nine teaspoons of sugar per can of soda, use of artificial sweeteners and Aspartame that should assist the company in accelerating household penetration in the United States.

Conclusion

SodaStream is currently trading at the trailing P/E multiple of 22.63 and forward P/E multiple of 15.89 that reflects a lot of room for growth for the stock in the future. Also, its PEG ratio of 0.71 expected for the next five years continues to complement the growth of the stock in the coming years. The company has operating cash flow of $27.27 million and the balance sheet reflects total cash of $36.24 million which is quite enough to cover the total outstanding debt of $38.62 million.

Hence, SodaStream looks like a good stock to buy from different angles.


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