SodaStream Drops as Investors Await Results From Strategy

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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 plunged 17 percent in New York trading through Friday from this year’s high last month compared with a 2.1 percent drop in the Standard & Poor’s 500 Index in the same span. The stock tumbled a record 11 straight days before climbing Friday. The company has been struggling to replicate its European success in the U.S. after efforts to brand itself as an alternative to Coca-Cola Co. and PepsiCo Inc. 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 Soda couldn’t execute well in the U.S.”

SodaStream reported first-quarter sales of $90.3 million, missing the $100.9 million estimate of nine analysts surveyed by Bloomberg, 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 flavors in the U.S. and France, according to a company press release.

Turnaround Plans

The stock soared briefly last month after Chief Executive Officer Daniel Birnbaum said 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 shares fell 1.5 percent to $19.50 in New York on Monday.

The company’s attempt to turn around its flagging business began late last year. It involves re-branding the company as a health-conscious maker of sparkling water, which can be plain or lightly flavored. New machines are expected to reach Bed, Bath & Beyond Inc. late this month and other retailers in September, and the company is making gas canisters more widely available, according to a July 7 note by Susquehanna International Group.

Birnbaum said in an e-mail Monday that “SodaStream expects the new positioning and flavor range to kick-in on the back half of 2015,” adding that 81 percent of the company’s revenue comes from outside the U.S. The new water flavors will be shipped to U.S. stores in late July, he said.

Volatile Stock

The re-branding makes sense as the majority of SodaStream customers already use it for sparkling water, Jim Chartier, an analyst at Monness Crespi Hardt & Co., said by phone. Six percent of U.S. customers use the SodaStream machines to make only soda; 60 percent use it only to make carbonated water, according to the company.

“For the last few years it’s been a volatile stock,” Chartier said. “Most investors are taking a wait-and-see approach to see how the re-positioning plays out and how it translates into improving sales and profitability for the company.”

SodaStream’s stock is set to rebound as the turnaround efforts take hold in the second and third quarters, according to Pablo Zuanic, an equity analyst at Susquehanna who rates the stock a buy. Susquehanna Financial Group is a market maker in SodaStream and beneficially owns more than 1 percent of the company.

Investor Hype

“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 July 1 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.’”

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