SodaStream (SODA 107.35, +20.05, +22.97%) is trading to a new all-time high after
reporting very strong Q2 results and guiding sharply higher for the full year. SodaStream
is the world's largest manufacturer of home beverage carbonation systems.
After being seen as a hot growth stock in 2013 with the potential to replicate its success in Europe in order to revolutionize the US carbonated soda market, the stock fell from $78 in mid-2013 to as low as $12 in February 2016. It turned out that US consumers did not want to make their soda at home. SODA was also hurt by evolving consumers' taste away from sugary sodas and because its at-home soda just didn't taste that good.
In response, SODA made a big change: it repositioned itself as a sparkling water brand. Its re-named Sparkling Water Makers enable consumers to easily transform ordinary tap water into sparkling (carbonated) water and flavored sparkling water in seconds.
Sparkling water is quickly becoming popular with consumers as it's a healthy alternative to carbonated sodas which have higher calorie counts, artificial flavors/colors, caffeine etc. Sparkling water brands like LaCroix and Polar Water are big hits with consumers these days. Also, at-home systems are more environmentally friendly as they avoid wasting plastic water bottles. SODA still has some work to do getting penetration in the US market, but its system is very popular in Europe while Canada is now its fastest growing market. Asia also has been strong, helped in part by China's desire to improve its environment, which includes reducing plastic bottle usage.
SODA's at-home system offers advantages: 1) Convenience 2) Cost effective 3) Healthier Alternative with no high fructose corn syrup 4) Environmentally friendly. The company has a recurring revenue stream in that customers must purchase consumable gas refills and flavor packets.
Turning to the Q2 results, EPS jumped 78% year/year to $1.14
while revenue rose 31.3% year/year to $171.5 mln. Both results were well ahead
of expectations. In fairness, changes in FX positively impacted revenue by
approximately $20 mln, mainly driven by the strengthening of the Euro/US Dollar
exchange rate. So that accounts for some of the upside, but it was still a very
SODA also issued upside guidance for FY18: revs now expected +23% vs prior guidance of +15%; EPS expected to rise +31% vs prior guidance of +8%. In terms of actual numbers, we compute as follows: SODA sees FY18 EPS of ~ $4.31 and revs of ~ $668 mln.
On the call, SODA said its business was on fire in Q2 with record revenue, gross margin and net income. The company believes it is just getting started in terms of penetrating into people's homes. Most notably, sales of sparkling water maker units increased 22% to over 1 mln in Q2 and sales of gas refill units grew 17% to an all-time record 9.7 mln. Looking ahead, SODA says it's more bullish about 2H18 than it was three months ago.
In sum, this was a huge quarter for SODA. It did get help from favorable FX (foreign exchange) rates, but the upside was more than that. Bigger picture, it seems that SODA clearly made the right call when it moved from soda to sparkling water a few years ago.