Shares of the at home carbonated beverage maker, Sodastream International Ltd. (NASDAQ:SODA), are losing air today, down 8% as of this writing. The company reported pretty disappointing earnings this morning, prompting investors to hit the “sell” button.
Adjusted earnings per share hit 35 cents, which is much better than the 3 cents it posted last year. But sales for the quarter came in at $126.5 million, down from $168.1 million for the same quarter last year.
The concensus estimates were earnings of 19 cents per share of SODA stock on $127 million in sales.
Full-year earnings came in at $511.8 million compared to $562.7 million YOY and earnings of $1.31 per share compared to $1.96 a year ago. Analysts were looking for full year sales of $512.28 million and EPS of $1.14.
One bright spot during the quarter was that gross margins increased eight percentage points to 50.4%, due to less discounting and promotions during the year. Unfortunately, that’s where the good news for SodaStream ends.
SODA Stock Faces a Dark and Stormy Outlook
While the declining revenue is certainly concerning, the company’s future plans are the real concern for investors in SODA stock. According to SodaStream CEO Daniel Birnbaum:
“We are confident that repositioning the brand around health & wellness … fits perfectly with the changing nature of consumer demands and will reaccelerate participation in our home carbonation system. … We have begun to reform our operational and organizational structure to better support our new strategy and drive improved efficiencies. While our actions will impact our near-term performance, we believe they will put us on stronger footing for delivering long-term profitable growth and increased shareholder value.”
This statement solidifies the company’s attempt to re-brand its business. Sodastream’s previous tagline of “a leading manufacturer of home beverage carbonation systems” has now been changed to a leading manufacturer of sparkling water makers”.
Of course, SodaStream is still left with the fact that it has the word “soda” in its name….
Sodastream has seen sales rapidly decline in the USA since its peak in 2013, likely due to the novelty aspect of the soda maker now wearing off for Americans. While in parts of Europe, making your own soda can be cheaper than buying it, the cost difference is negligible here in the U.S.
So, as the company expects the soda business to decline, it’s attempting to move into water — an industry that is possibly even more competitive than the soda market. Furthermore, as if the bottled competition wasn’t enough, Keurig Green Mountain, Inc. (NASDAQ:GMCR) is releasing a cold beverage machine of its own. SodaStream will soon be competing with one of America’s most beloved at-home brewing machines.
But, the most notable reason why Sodastream is doomed is that, in the most recent quarter, sales of sparkling water makers dropped 34% year-over-year and sales of water flavors slid 38%. Yet, somehow, this is a market management believes it can capitalize on.
Shareholders should sell SODA stock now, before things get worse.
As of this writing, Matt Thalman did not hold a position in any of the aforementioned securities.
