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SodaStream International Stock Loses Steam After Dismal Third Quarter Results

October 30, 2014 | About:

SodaStream International (NASDAQ:SODA) is engaged in manufacturing and marketing home beverage carbonation systems and related products. The company had reported lackluster third-quarter preliminary results on October 7, when it had projected that revenue would be down sequentially by 11.5% to around $125 million. When the results were out on Wednesday, October 29, the stock immediately plunged close to 3%, as the results almost matched the announcement made on the previous date this month on the quarterly earnings. Investors are worried as the revenue has literally shown a drastic fall from the previous year third quarter and the management are undertaking a restructuring program to keep numbers from further falling off in the subsequent quarters. So, what’s the crux of the earnings posted by SodaStream? Let’s have a sneak peek into the earnings call.

The dull numbers say it all

CEO Daniel Birnbaum stated during the call, “Our third quarter performance was pressured by challenging selling conditions for soda makers and flavors primarily in the U.S…” He further added that sales of sodas saw a mixed response in international markets outside the U.S. Revenue was reported as $125.9 million, down from $144.6 million a year earlier. Also net profit took a nosedive and stood at $9.5 million from $16.4 million reported a year back.

The reported revenue missed the consensus estimate of $131.74 million for the quarter. The dim results led to the stock hitting $21.40 after the results, and this was close to its yearly low of $20.13.

Earnings fell to $0.45 a share, from $0.76 a share reported in the same quarter of the prior year. The management has shown immense concern during the earnings release as such numbers could continue; consumers in the U.S. are shifting their interest from such sodas to healthier juices, which is why SodaStream has taken such a hit in both its top and bottom lines. The company performed well in Germany, Australia, Canada and Switzerland, but this was again partially offset by decline in distributor markets, namely France and Czech Republic.

As the results were truly disappointing even for SodaStream’s management, they have revised their guidance for the fourth quarter and have taken a cautious stand for the next quarter. The management expects full-year revenue and profits to take a plunge as it faces strong headwinds in the U.S. and some of the other markets on a global scale.

The company has estimated full-year revenue to be down approximately 9% and net income to decrease approximately 42% from what has been seen for the previous fiscal year.

Stock market shows sharp negativity

As discussed in the above sections, the stock has moved nearly 3% down after the results were declared on the NASDAQ. 917,634 shares of the company’s stock traded hands on Wednesday. Presently, 28.9% of the shares of the stock are sold short.

Several analysts have also commented on the stock. Zacks analysts have downgraded the shares from “neutral” to an “underperform” rating, while analysts at Roth Capital downgraded the shares from a “buy” rating to a “neutral” rating. However, as such headwinds might be temporary and as the company is devising strategies to grow and prosper in the coming future, many analysts still believe that the stock should uphold a “hold” rating and an average target price of $37.60.

Management devises plan of action to induce growth

The CEO of SodaStream reiterated during the earnings call, “Today, we are introducing a comprehensive growth plan that will serve as our blueprint for returning SodaStream to profitable growth. We are fully committed to getting the company back on track and leverage the unique opportunity we have to fulfill our role in the transformation under way in the beverage industry.”

SodaStream, listed in the U.S., said that it would close the Mishor facility in West Bank, and the Alon Tavor facility inside Israel as a part of its restructuring program. Also, the company hopes to relocate the production into a new plant from the West Bank facility since the company presently has over 200 production facilities worldwide.

Besides shifting some production, the company also emphasised on discontinuing certain beverage makers and flavors. According to company sources, the cost of such a decision and factory closures could be about $20 million. Such manufacturing consolidations could drive 200 basis points of the gross margin and improvement in operating margins could be apparent probably from 2016 fiscal year.

The company has also hinted in its growth plan that it could establish new generation products, new distribution channels; expand in e-commerce to drive incremental sales. The company intends to provide unique better-for-you “Water Plus” beverage products and wishes to overtake PepsiCo (NASDAQ:PEP) and Coca-Cola (NYSE:KO) to become the world’s leading sparkling water company.

Last word

SodaStream is currently under tremendous pressure as juices and teas are being preferred by many over sodas, and since its beverage portfolio lacks the interest elements, the company seems to be under the cover of dark nimbus clouds. But the management strives to reinforce the profits once again as was until the previous year is commendable and though many investors have started selling the stock, the company stock has not lost all its luster at one go. In the days ahead, SodaStream’s new strategies might help to see much better days than what it’s going through at the present phase. But, yes, the third quarter was a dismal one and as the company is opting for aggressive restructuring to restore the decent numbers in its financial report card, the next few quarters might also have similar bad set of numbers. So it’s best to stay tuned and keep watching the company’s moves.

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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