David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Suntory ought to have everything going for it.

At a time when health concerns are on the brink of causing U.S. bottled-water sales to overtake soda, the world's third-biggest soft drinks company is much less exposed to carbonated beverages than its larger rivals PepsiCo and Coca-Cola.

Big in Japan
Suntory is the world's third-largest soft drinks company by trailing 12-month revenues
Source: Bloomberg
Note: Femsa has been excluded from the ranking to avoid double-counting. The Mexican company derives the largest share of its revenue from its 48% stake in Coca-Cola Femsa, but an almost equal share comes from its convenience store business. We left it out since Coca-Cola Femsa is already included.

Its Japanese product portfolio -- by volume, about two-thirds mineral water, tea and coffee -- already looks a lot like what other drinks companies dream of selling in a future universe where sales of the fizzy stuff have gone flat.

Since its $4 billion initial public offering in 2013, Suntory -- 59.5 percent-owned by the eponymous whisky maker, Suntory Holdings -- has traded on a consistent valuation premium to Coke and PepsiCo.

Energy Drink
Blended forward 12-month price-earnings valuations of major soft drink companies
Source: Bloomberg

If only its performance could match those lofty expectations.

First-half net income fell 4.8 percent from a year earlier to 17.9 billion yen ($177 million), the company said after markets closed Thursday. It'll drop at about the same rate over the full year, with 40.5 billion yen forecast for the 12-month period, in line with management's prediction at the group's first-quarter results.

That's still about 6.5 percent below what analysts were expecting on the eve of Thursday's numbers, and about 18 percent short of estimates at the start of the year. After peaking in the September quarter of 2015, Suntory's earnings seem to be headed on a steady downward trajectory:

Use-By Date
Suntory's trailing 12-month net income peaked last year and is headed further down
Source: Bloomberg
Note: No figure provided for September 2016 quarter because the company doesn't provide a quarter-by-quarter forecast.

Management can't be blamed for all of this. Like Japan's carmakers, Suntory has been suffering from the effects of a stronger yen -- earnings would have risen 3.1 percent instead of falling if exchange rates had held steady, according to a company presentation.

And shareholders appear to have been pleased the financials weren't any worse. Stock in Suntory rose as much as 2.4 percent in early trading Friday -- almost as good a performance as brewer Kirin, which upped its full-year earnings forecast 33 percent on the same day as Suntory's quarterly result.

Equity analysts, however, should start marking their predictions a bit closer to the market. Of 12 analysts tracked by Bloomberg, seven rate Suntory a buy and five a hold. Their target prices have consistently overestimated the shares' performance since the IPO.

Sugar High
Analysts seem consistently more optimistic than the market about Suntory's prospects
Source: Bloomberg

Suntory has some considerable advantages. Unlike PepsiCo and Coke, whose top lines have been shrinking for years, it's still growing and expanding into new markets such as Africa, where it bought GlaxoSmithKline's Nigerian bottling and distribution arm last month.

Drink Up
Suntory's sales are still growing, unlike those of its larger peers
Source: Bloomberg
Note: Companies have slightly different year-ends. Dates have been lined up to calendar quarters for consistency.

Its finance costs are low as well, with interest payments covered 23 times by Ebit. But Suntory's stock had fallen 21 percent this year before Thursday's result, and is back below the forward price-earnings ratio at which it was sold in the 2013 share sale.

If Suntory wants to retain its premium valuation, it's going to need to start performing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Katrina Nicholas at