SodaStream Profits Should Continue to Rise

Last Thursday, Israel-based SodaStream (SODA) announced Wall Street-smashing earnings results, sending the company's stock soaring. On Monday, shares of the personal appliance company fell more than 3.5%.

But this is not proof that the company will continue downward; rather, investors should consider the stock. SodaStream shares fell 3.51% in Monday trading. 

For the third quarter, SodaStream reported earnings of 69 cents per share, far surpassing analysts' consensus estimates of 23 cents per share. And when it came to revenue, SodaStream also exceeded Wall Street's expectations, clocking a sales rise of 12.9%, to $124.2 million, versus analysts' forecast of $116.5 million.

SodaStream's earnings before interest, taxes, depreciation, and amortization (EBITDA) also soared, gaining 140.6%, to $23.3 million. In the third quarter of 2015, this figure clocked in at only $9.7 million.

"Our top-line performance included a 23% increase in sparkling water maker unit sales, to 788,000, our highest quarterly figure in nearly two years," said CEO Daniel Birnbaum. "During the third quarter, our home carbonation system was used to produce and consume more sparkling water than any other brand worldwide, which resulted in an all-time quarterly record 7.7 million gas refills."

SodaStream produces machines, accessories, and flavoring syrups so that consumer can make gourmet sparkling drinks at home. These products were originally marketed as "do it yourself soda" makers. However, during the last few years, it's been nearly impossible to make headway in the soda industry because of changing tastes and increased competition. SodaStream has had to rethink its marketing.

Sales of fizzy, sugary drinks have plummeted, with both Coca-Cola and PepsiCo taking hits to their soda portfolios. Even Diet Coke, which was long a top-seller in the nonalcoholic beverage industry, has watched sales drop.

This slump stems largely from Western consumers increasing preference for food and drink items they deem healthy. Sugary sodas do not fit into that category.

The traditional soda companies have focused on alternative products to compensate for sales losses. Coca-Cola has broadened its line of juice, tea and sports drinks. PepsiCo has been secure thanks to its large, diverse snack food portfolio.

Sales of lightly flavored waters have also helped both companies.

SodaStream has tapped into that trend, re-marketing its soda machines -- after quarters of dismal sales -- as makers of gourmet sparkling water drinks. The company has even adopted a new motto: "Love Your Water."

SodaStream has also reinvigorated its marketing, earning a place on shelves at Whole Foods Market, the popular U.S. supermarket chain that features healthy and gourmet foods.

These strategies have been paying off, big-time. Since the fiscal year began, SodaStream has reported nothing but revenue and sale increases. 

SodaStream should continue to be a growth play for investors as its products reach a wider audience. The company has already announced lower-priced "starter" models that should broaden its appeal. That's not to mention a beer-making machine that the company has launched.

Investors should hold onto SodaStream and load up on more shares whenever the price heads downward, as it did on Monday.


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The author is an independent contributor and at the time of publication owned none of the stocks mentioned.

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