SodaStream’s (SODA, Financial) recent results were not so impressive. It continues to experience softness in the market for its soda makers and flavours as people are becoming more health conscious. Its revenue and earnings declined 13% and 41% respectively. On the other hand, its gas refills market looks pretty good and continues to grow at a double digit growth rate. In addition, SodaStream plans to introduce a comprehensive growth plan that should perhaps help the company to return profitability in the long-run.
Growth plan to improve its performance
SodaStream looks pretty good on its growth plan. Its growth plan concentrates on organization, marketing, product & innovation, distribution and operation. It plans to recruit top talents along with innovative tools that should strengthen its leadership and board of directors. It also plans to establish a new centralized commercial leadership team. This team will focus on expansion of distribution, in-store execution, and expanding-e-commerce business and oversee the transition to the next generation.
In addition, its marketing pains are really compelling. Its marketing message should assist SodaStream to reposition its brand around health and wellness. It has recently announced its global commercial position that is focused more on water and positioning. Its marketing message carries a new tag line, ‘Water Made Exciting’ instead of ‘Your Home Soda Factory’. Going forward, the company is focusing on sparkling water maker. Also, its soda mix with syrups will now be sparkling water flavours. This is undeniably a dramatic change and should create competitive position for SodaStream in the long-run. Also, SodaStream is pulling back most of its advertisement, A&P and promotional spend in order to better align its message with its product portfolio.
Making the right moves
According to Mintel and Beverage Digest, the sparkling water category grew 33%, while flavoured sparkling water grew 62% in 2013 in the United States. The company expect these two categories to grow remarkably in the coming years.
Having sensed the trend in the market, SODA plans to launch various new products towards health and wellness in the United States and other new markets. These new products are more natural and less caloric, water based beverages and in line with mega trends shift towards health and wellness in the region. Its new water plus portfolio of great testing products looks quite good. It utilizes sparkling water flavours with the natural ingredients and no artificial sweeteners. At present the company is screening out these flavours by the professionals with rigorous standard of quality for launch.
SodaStream additionally plans to expand its international business with cap dosing solutions. It is planning to introduce sweet new flavour bottle, which is more aesthetically pleasing than its existing bottles. Moreover, these entirely new range of sparkling water flavours will still allow the user to enjoy classic flavours such as cola, orange and lemon lime. The company is reformulating and re-branding those flavours on to a new sub brand called Fountain Style. These are hydrate healthy drinks and should assist the company to regain the position in the sparkling water industry. The company remains solid to capitalize this demanding change that should assist SodaStream to remain competitive in the future.
This carbonated soft drink market is poised to grow more than $200 billion over the years. This is tremendous growth opportunity and SodaStream will certainly take away a big share of this vast total addressable market. It is adopting the rapid change more vigorously. In addition it has one of the most powerful global infrastructures with more than 70,000 retail stores in 45 countries. Also, the rich product portfolio and exciting various innovative products should assist the company to uniquely position and play a vital role in the future of the beverages industry.
Finally, the company remains on track to consolidate its operation that should drive its efficiency going forward. It has got approval for its government brands of late that amounts for nearly $15 million. Also, it is opening one new state-of-the art facility in Lehavim in the southern part of Israel, which has been approved recently. The company expects these facilities to start production by mid-2015. Also, it is shifting away its focus from sub-contractors and plans to remove its country transportation. This consolidation should drive 200 basis points of gross margin improvement starting in 2016.
Conclusion
SodaStream looks good with its growth plan that should drive its growth going forward. The analysts expect its earnings to grow at CAGR of 21.67%, higher than average industry CAGR of 14.17% for the next five years. However, the company doesn’t offer good returns in the short-run as it is transforming its business around.
Nevertheless, it has quite an attractive valuation. It has trailing P/E of 20.84 and forward P/E of 16.54 that indicates potential profit for shareholders and investors in the future. Moreover, it has PEG ratio of 0.86 that continues to support its growth in the long-run. Its balance sheet carries total cash of $39.90 million and total debt of $35.80 million. Soda Stream has operating cash flow of $45.03 million.
