SodaStream International Ltd’s promise to invigorate sales by reinventing itself as a health-conscious provider of sparkling-water machines is eliciting a response from investors: “Prove it.”
The Israeli company’s stock has plunged 17 per cent in New York trading from this year’s high last month, compared with a 2.1-per-cent drop in the Standard & Poor’s 500 Index in the span. The stock tumbled a record 11 straight trading days before climbing Friday. The company has been struggling to replicate its European success in the US after efforts to brand itself as an alternative to Coca-Cola and Pepsi didn’t align with shifting consumer preference for healthier options.
“There was a high expectation built into the market,” Steven Schoenfeld, the New York-based founder of BlueStar Global Investors LLC, a financial research firm focused on Israel, said in a phone interview. “The market was very disappointed when [SodaStream] couldn’t execute well in the US.”
SodaStream reported first-quarter sales of $90.3 million, missing the $100.9-million estimate of nine analysts surveyed by Bloomberg, and down from $118.2 million a year earlier. The slump in adjusted revenue was mainly the result of foreign currency fluctuations and lower demand for carbonated-water makers and flavours in the US and France, according to a company press release.
Turnaround Plans
SodaStream’s US office didn’t respond to recent requests for comment.
The company’s stock soared briefly last month after chief executive officer Daniel Birnbaum said that he didn’t expect much competition from the Keurig Kold machine, a soda-maker set to be released later this year by Keurig Green Mountain, Inc. It didn’t take long for investor disillusionment to set back in.
The company’s attempt to turn around its flagging business began late last year. It involves rebranding the company as a health-conscious maker of sparkling water, which can be plain or lightly flavoured. New machines are expected to reach Bed, Bath and Beyond in late July and other retailers in September and the company is making gas canisters more widely available, according to a 7 July note by Susquehanna International Group.
The rebranding makes sense, since the majority of SodaStream’s customers already use it for sparkling water, Jim Chartier, an analyst at Monness Crespi Hardt & Co., Inc, said by phone. Six per cent of US customers use the SodaStream machines to make only soda, while 60 per cent use it to make only carbonated water, according to the company.
Hype Machine
“For the last few years, it’s been a volatile stock,” Chartier said by phone. “Most investors are taking a wait-and-see approach to see how the repositioning plays out and how it translates into improving sales and profitability for the company.”
SodaStream’s stock is set to rebound, as the company’s turnaround efforts take hold in the second and third quarters, according to Pablo Zuanic, an equity analyst Susquehanna who rates the stock a buy. Susquehanna Financial Group is a market-maker in SodaStream and beneficially owns more than 1 per cent of the company.
“By the time they hold the conference call for the third quarter in late October, early November, I expect we will have some positive news that will move the stock up, both in terms of improved sales and new retail relationships,” Zuanic said by phone.
SodaStream has approached retailers including Whole Foods Market, Inc. and Vitamin Shoppe, Inc. in an effort to expand its in-store presence, Birnbaum said in a 1 July conference call. It may seek to partner with coffee producers for the launch of Ultimate by SodaStream, a combined hot- and cold-beverage machine, in 2016.
“They need to do something almost revolutionary, like they did four, five years ago,” Schoenfeld said. “It had so much hype built into it that now investors are in the mood for ‘Show me, prove it, deliver earnings.’”
News by Bloomberg, edited by ESM
