SodaStream International Ltd., the Israeli maker of at-home carbonation machines, has certainly tested the faith of bullish investors in the past 12 months.
Now, more than a year into his plan to revive slumping profit at the company, Chief Executive Officer Daniel Birnbaum has given them something to cheer about. First-quarter profit and sales beat estimates by wide margins, sending the stock up 24 per cent last week to $18.45 (U.S.), its best weekly performance in almost five years. The company’s Tel Aviv-traded stocks soared 9.3 per cent to 69.44 shekels ($18.34), the highest closing level since Dec. 16.
Birnbaum attributed the earnings surprise to strong demand in Europe and a new marketing strategy casting his sparkling-water machines as a health-conscious alternative to sugary sodas. But his biggest challenge, replicating the European success by growing household penetration in the U.S., has so far proved elusive.
“They’re at the inflection point, and we anticipate a rebound in the U.S. soon,” Joshua Schachter, who helps oversee about $4.7 billion including SodaStream shares, at Snow Capital Management in Sewickley, Pennsylvania, said by phone. “The health and wellness category is where the growth is for this industry—it’s not in soda, but water.”
American Shelf Space
Schachter is encouraged by SodaStream’s deal to increase shelf space at American retailers like Target Corp., and a pilot project to sell carbonation machines and the gas canisters that enable them at Whole Foods Market Inc. stores in the Northeastern U.S.
SodaStream’s revenue rose about 10 per cent to $101 million in the first quarter, while net income fell 27 per cent to $6.1 million. Still, profit was more than double the $2.6 million average analyst estimate.
Lod, Israel-based SodaStream has been able “to gain efficiency and reduce costs” by consolidating production and logistics in a new facility in Southern Israel, Birnbaum said on a conference call with investors last week.
“As we have repositioned SodaStream as a sparkling water brand we have experienced a strong turnaround across the globe and we know the new positioning is working in the U.S. as well,” Doug Pritchard, President of SodaStream North America, wrote in an emailed response to questions. “Our research shows higher household penetration is achievable with this positioning and messaging.”
‘Game of Thrones’
SodaStream has produced a battery of new ads, including one featuring Julius Bjornsson, who plays a character called “The Mountain” on the HBO series Game of Thrones.
It’s not the first time Birnbaum has tried to take U.S. markets by storm with aggressive advertising. In 2013, SodaStream released a Super Bowl commercial featuring exploding bottles of Coca-Cola and Pepsi that was rejected by broadcast networks as being too negative. The ad went viral on YouTube, but didn’t translate into substantial sales growth that year.
A year later, SodaStream reported 2013 earnings that fell short of analysts’ estimates, sending the stock into a downward spiral from which it has still not recovered. Its market capitalization is roughly a quarter of its $1.5 billion peak five years ago, and the shares trade below their 2010 IPO price of $20.
Only one of five analysts covering the stock recommend buying the shares, according to data compiled by Bloomberg. The lone bull, Anton Brenner at Roth Capital Partners, raised his price target to $22 from $20 on May 11, citing the surprise earnings beat, though he too was restrained in his enthusiasm.
“We anticipate sustained sales and income improvement through the year, although at this early stage of the turnaround we remain cautious,” Brenner wrote in the note.
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