SodaStream (SODA) Stock Crumbles on Earnings Warning - Analyst Blog

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Monday was a big session for a number of stocks, as several released fresh guidance or offered up their take on the key holiday season. While many of these new releases led to big moves, SodaStream ( SODA ) clearly stood out on the downside.  

In fact, shares of the once-high flying SODA crashed by over 25% on the day, thanks to worries over holiday sales, and concerns over its 2014 outlook. Volume was also extremely elevated, with volume hitting more than ten times normal following the news release.

SODA Earnings in Focus

SodaStream announced that its preliminary results for 2013 came in a bit below expectations. Revenues were a tad light, missing a consensus estimate by $5 million, though a net income miss- of over 20% -- was the real cause for concern.

This is because such a big miss on income despite the relatively solid revenues suggests that profit margins are falling for this do-it-yourself soda upstart. And, with increased competition, it is clearly becoming much more difficult for SODA to keep growth levels at a solid clip.

"Despite achieving all-time record sales, we failed to deliver our profit targets and are disappointed in our fourth quarter performance," said Daniel Birnbaum , Chief Executive Officer of SodaStream. "These preliminary results reflect a challenging holiday selling season in the U.S. and several factors, mostly from the second half of the quarter that negatively impacted our gross margin."

SodaStream also said that it expects some of the headwinds to continue into the first half of the year, suggesting more weakness might be ahead for the company. However, SODA did note that they hope to restore margins back up to past levels later on in the year.

Earnings Estimates

SODA was already a Zacks Rank #4 before this poor news on the guidance front, so estimates were trending lower for the company leading up to this event. Plus, its industry also receives a pretty terrible rank too, as it is currently in the bottom 10% of all industries surveyed.

And with the reduced guidance, it seems very likely that earnings estimates will be coming down again over the next few days. If that is the case, Zacks Rank #5 territory is very likely for this underperforming stock before too long.

Can SODA Get Back on Track?

A 25% move lower is pretty large, though the reduction in profits was quite big too. And given the dependence of SODA on its key product, it will be tough to turn things around in 2014, especially if margins can't rebound.

Widespread adoption will be necessary, as SODA can make back more on the flavor packs and carbonation cartridges as a recurring revenue stream. The firm is also hopeful that its ad at the Super Bowl will help to jumpstart this process, but it will definitely be an uphill battle.

After all, earnings estimates were already tumbling before the weakness in the holiday quarter was confirmed by SODA management. And with such widespread sluggishness in the consumer products market, it may take some time before SODA can find its footing again, suggesting more rough trading could be ahead for this company.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: SODA

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