By Kevin Cook
SodaStream (SODA) disappointed the Street on October 30 and analysts knocked down EPS estimates sufficiently to drop the stock to a Zacks #4 Rank Strong Sell the next day.
Since then, shares fell from the high $50s to around $50 where they attempted to hold the line. But this week came the blindside that every investor hates: the pre-announcement.
SODA management revealed on Monday that the outlook isn't getting any better, owing to a number of factors, including a challenging U.S. holiday season, lower sell-in prices, increased production costs, as well as unfavorable product mix and, of course, foreign exchange. Yada, yada, yada.
But the headline from Briefing.com at 7:40am ET said it all as the stock dropped 26% from $50 to $37: SodaStream sees FY13 adj. net income $52.5 mln from $65 mln vs. $63 mln consensus.
As a fresh round of downward earnings estimate revisions (EER) piled in this week, the stock slipped to a Zacks #5 Rank Strong Sell on Thursday. Here's what Oppenheimer analysts had to say:
"We now forecast 2013 adjusted EPS of $2.45, down from our prior estimate of $3.05 and up only slightly from the prior year's $2.39. We are also reducing our 2014 adjusted EPS estimate to $3.00, which is up 22% over our revised 2013 forecast but down sharply from our prior estimate of $3.70."
Lipstick on a Bombshell
How can you soften the blow when you pre-announce? Offer some other good news -- or a powerful distraction at least. In the case of SodaStream, they went for both with the announcement that the company signed actress Scarlett Johansson as its first-ever Global Brand Ambassador.
The multi-year partnership will kick-off when SodaStream premieres its first ad featuring Johansson during Super Bowl XLVIII on Sunday, February 2, 2014. How interesting is it that this was revealed two days before the earnings pre-announcement?
Don't get me wrong, I think bringing Scarlett on was a beautiful move. She can only help. And I'm not suggesting anything but random coincidence. In one sense, the bold marketing move signals a company with its sights still set on strong global growth and deeper household penetration, as well as new product innovations.
In short, the long-term growth story for SodaStream may still be very attractive, especially at these valuations. But we need to see the company get through this rough patch first to be a buyer of shares. We'll know the coast is clear when the estimates stabilize and begin rising again.