Can SodaStream regain its fizz?

Disappointing holiday sales and the strong shekel have hit investors' confidence in the beverage systems maker.

SodaStream International Ltd. (Nasdaq: SODA) was not the only company to publish a profit warning because of disappointing business performance during the Christmas shopping season. Bed, Bath & Beyond Inc. (Nasdaq: BBBY), Lululemon Athletica Inc. (Nasdaq: LULU; TSX: LLL), and Pacific Sunwear of California Inc. (Nasdaq: PSUN) also disappointed investors with warnings, but SodaStream's plunge was especially brutal: the share price fell 26% on Monday to $36.94, giving a market cap of $769 million, wiping out $270 million in value.

The home beverages carbonation systems maker's share price is now 52% below its peak.

In its preliminary estimates for 2013, SodaStream forecast a GAAP-based net profit of $41.5 million, 5.5% less than in 2012, and a non-GAAP net profit of $52.5 million, compared with the analysts' consensus of $65 million.

The fourth quarter shows a grim picture. Although SodaStream will remain profitable, its non-GAAP net profit will be less than $3 million - 82% less than for the preceding quarter and 70% less than for the corresponding quarter of 2012. Assuming that the preliminary estimates materialize, the GAAP-based net profit will be just $154,000.

Although SodaStream was far from the only consumer products company with less than expected holiday performance, it does not attribute its weakness to macroeconomic factors. It says that season sales actually rose to an all-time high. It forecasts $562 million revenue in 2013, 29% more than in 2012, including $167 million revenue for the fourth quarter, up 26% over the corresponding quarter.

This raises to fundamental questions for the company: the first is why the revenue growth did not trickle down to the bottom line; the second is whether this is a one-off event. Monday's announcement indicates that the product mix affected the financial results. The company sold discounted holiday packages, which hurt profits.

SodaStream apparently expected that volume sales would more than offset the lower prices. It erred. Profits were also hit by the shekel's appreciation against the dollar, because a substantial part of the company's costs, especially labor, are in shekels.

Although SodaStream CEO Daniel Birnbaum said that the company was implementing the necessary measures to restore margins to historical levels in 2014, the plunge in the share price suggests that investors fear that the problems are not fleeting.

Barclays Capital analyst David Kaplan says, "We believe that SodaStream will face an uphill IR battle in the near term and that this result will bring into question SodaStream's ability to execute on its long term plans." Kaplan nevertheless reiterated his "Outperform" recommendation with a $100 target price, which now reflects a 170% premium.

Citi Research is less sanguine. Although it also reiterated its "Buy" recommendation, it cut the target price by 31% to $51, a 43% premium on the current share price. Deutsche Bank reiterated its "Hold" recommendation and $51 target price, warning of a fall in the company's results in 2014.

Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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