SodaStream Bulls Vindicated After Coke-Backed Rival Bows Out

  • SodaStream stock up 13% in July after Keurig exits market
  • Maker of home carbonation machines reports earnings Aug 2

Demonstration models of homemade soda makers, manufactured by SodaStream International Ltd., sit on display at a Home Center store in Jerusalem.

Photographer: Ariel Jerozolimski/Bloomberg

With the threat from Coca-Cola Co. gone, investors in SodaStream International Ltd. have reason to be upbeat.

The exit of a competitor, financially backed by the maker of Coke, has raised the odds that Chief Executive Officer Daniel Birnbaum can make good on a pledge to boost U.S. sales of his at-home carbonation machines. Shares soared in May after first-quarter profit and revenue beat estimates, yet another sign of confidence in his vision.

There was a time when Keurig Green Mountain Inc.’s entrance into the cold beverage market and partnership with Coca-Cola filled SodaStream investors with dread. Would it be able to grow in the U.S? The odds look better after Keurig, absorbed by private equity firm JAB Holding Co. in March, said in June it would discontinue its single-serve home soda appliance after a troubled rollout.

Shares have responded in kind: up 13 percent this month and touching $24.16 on July 22, the highest since October 2014. They closed at $24.05 in New York last week. The Tel Aviv-traded stock rose 1.2 percent, the most since July 25, to 91.81 shekels ($24.08) at the close of trading in Tel Aviv.

“They had a failed strategy and a really dangerous competitor in Keurig with Coke,” said David Barr, who oversees about $500 million including SodaStream shares, at PenderFund Capital in Vancouver. “Now they don’t have that competitor anymore and I think they have the right strategy.”

Birnbaum has switched tactics. He is now trying to invigorate sales by reinventing SodaStream as a health-conscious brand, abandoning an earlier marketing ploy that pitted the company directly against soda titans Coca-Cola and PepsiCo Inc.

An investor relations representative for Lod, Israel-based SodaStream didn’t respond to an e-mailed request for comment sent after business hours in Israel.

While Birnbaum has made the company more efficient by consolidating production and logistics in Israel, his main goal of growing household penetration in the U.S. has so far proved elusive. The better-than-expected earnings last quarter were largely driven by strong European demand, he told investors at the time.

Five out of six analysts still have a neutral rating on the stock, data compiled by Bloomberg show. The company’s market capitalization is $508 million, roughly a third of its peak three years ago.

SodaStream will report $4.62 million in adjusted net profit on $106 million in revenue in the second quarter, a more than 30 percent increase from a year ago, according to the average estimate of five analysts surveyed by Bloomberg. Profit is expected to decline 8 percent this year, versus 47 percent in 2015, while revenue will grow 6 percent, the first annual expansion since 2013, estimates show. The company reports second-quarter earnings Tuesday.

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