SodaStream Q2 Earnings Recap

While SodaStream (NASDAQ:SODA) knocked another quarterly performance out of the park, the stock has fallen, albeit modestly, since releasing its Q2 2012 quarterly earnings last Wednesday. The stock rose sharply in the pre-market, but it was pretty much downhill from that point. So the real question is, do we have another SODA buying opportunity on our hands? Only time will tell as the company is gearing up for the Canaccord Genuity Growth Conference on 8/14/2012 in Boston. For some reason, shares of SODA seem to react positively when the company presents at such conferences.

Let's start with some basic facts that investors should consider from the Q2 report. SodaStream beat on both the top and bottom line once again, margins rose YOY, the euro currency did not have that much of an impact on earnings, Europe is still a growing market for SodaStream and Wal-Mart (NYSE:WMT) shoppers are rapidly adopting the home carbonating system while other US retailers like Bed Bath and Beyond (NASDAQ:BBBY), Target (NYSE:TGT), Costco (CSTO) and Kohl's (KKS) are still seeing growing sales from SodaStream products. Let's not forget or dismiss the fact the company also raised its full-year outlook for the second consecutive quarter. I could bore you with numbers that point to the company's continued strong execution on a global scale, but most of you have read through the quarterly report by now; so let's move on to some product talk, expansion talk and second half of the year general talk.

First, we know the Revolution machine is on its way. The Revolution is the company's first electric soda machine introduced for the consumer market. Truth be told, the Revolution is actually already in William Sonoma (WS) stores and available on the retailer's website. The company hasn't named additional retailers who will be carrying the Revolution, but we would expect a retailer like BBBY to jump all over this product offering. The second product to hit stores in the coming months will be the Source soda machine. The Source offers consumers a sleek design encapsulated in a seamless shell. It is a higher end small appliance with a moderate price tag. The Source bottles have a different shape then the existing bottles offered by SodaStream, but the original bottles can still be used in the Source machine, so compatibility won't be issue. While we will see the Source machine in stores this year and at price points from $99 up to $149, SodaStream has not issued a public statement regarding which retailers will carry the new soda machine.

Are there any other products that we might have missed? Of course we can't forget about the SodaCaps. SodaCaps are currently in a test market in Israel and won't be mass distributed until 2013, but they will be available at limited US and European retail locations during the fourth quarter of 2012. For those who like a little spice in your carbonated drinks, SodaStream has just the thing: The company is launching a whole new line of products it is calling Night Spirits. On a post-earning conference call between Capital Ladders and SodaStream, further insight was given on this initiative (more information here).

Moving away from new products, let's discuss some possible 2012 expansion efforts investors could expect from SodaStream. With nearly 60,000 retail doors world wide and growing, the company has only scratched the surface of where it could eventually end up with regards to retailers. Remember, in the US, the company hasn't entered the retail grocery chain to any great degree. Yes I know Wal-Mart is a grocery chain, but I would be speaking more about Kroger (NYSE:KR), Safeway (NYSE:SWY), Publix, Supervalu (NYSE:SVU) and Winn Dixie just to name a few. The company also hasn't entered into pharmacy/convenient store chains in any meaningful way either in the US, so I would have to refute the notion that Wal-Mart was the last piece to the expansion puzzle in the US for SodaStream. Currently, SodaStream boasts just over 13,000 retail doors in the US with more than double that number still available for partnerships.

In the post-earnings conference call between Capital Ladder Advisory Group and SodaStream management, we were offered a little more insight into further US retail expansion expectations during the second half of 2012. The company expects to end the year with between 14,000 and 15,000 total retail doors. That is a healthy batch of new orders for the company and would certainly book-end the year nicely for SodaStream. So who could the possible new retail candidates be? The first natural candidate could be Sam's Club due to the successful roll-out and sell-through numbers at Wal-Mart as well as the strong sales from another bulk retailer like Costco. Seems logical, no? Who else could be on the list of possible new retail distributors? How about Dillard's (NYSE:DDS)? Dillard's is one of the few remaining department stores yet to sell the SodaStream system as they have watched SODA grow in the US over the last few years. With every consumer dollar being fought over during the holiday season, could Dillard's finally come into the SodaStream family of retail partners? If we add up the numbers, with 600+ doors from Sam's Club and nearly 200 hundred doors from Dillard's we get into the range for which management has outlined for total US retail doors in 2012. We have additional ideas about retail expansion for the US and SodaStream on our site; one could say, better ideas about US expansion.

Now let's update investors on the state of global expansion for SodaStream, which is currently in 43 countries and looks forward to increasing that number in 2013, possibly sooner depending on a number of variables. SodaStream has talked in great detail about entering the valuable and profitable market of India for the last 10 months. Most recently the company said that Greece, along with India, would be achieved in 2013. While the company disclosed this expectation for the public, at Capital Ladders we expect India to come into the fold sooner than 2013.

Greece, on the other hand, was more of a side note when the CEO spoke about India. Bloomberg's reporter misinterpreted the intention of Daniel Birmbaum's comments regarding Greece. When Birmbaum mentioned Greece, it was only to state that the country was a soda-drinking nation and as such it is a possible country SodaStream would consider for expansion in 2013. Funny how the connotation of words can change the original meaning of a statement so easily. No harm, no foul, as Greece does remain a good candidate in spite of the country's economic woes. But why does it remain a good candidate? We have greater details surrounding the recent Coca Cola/SodaStream dispute that speculates upon the recent disagreement as being much more than a disagreement over the Cage exhibit.

Have you seen the price of a two liter of Coca-Cola (NYSE:KO) lately? Anecdotally, Coke has raised its price on the 2 liter bottle nearly 35% over the last two years. Let's not leave Pepsi (NYSE:PEP) out of the conversation. Pepsi has raised their price for a two liter bottle by 28% over the same period. (These figures are based on my observations of prices at one retailer, Wal-Mart, from 2010 to present.)

Moving away from Greece and Coke, there are some other big markets that SodaStream can and will be exploring in the future. The biggest soda market in the world just happens to be a stones throw away from the US. Actually, a hop skip, and proper documentation away from the US and of course I would be referring to Mexico. SodaStream has been in Mexico in the past, but issues with distribution forced the company to reassess the market at that time. But now the company has so many more resources at its disposal and the landscape of the Mexican economy and its retail establishments has changed so drastically that SodaStream is preparing to enter this market in the near to midterm. Another way one could look at the natural progression into Mexico is through Wal-Mart. Don't forget that Walmex is a subsidiary of Wal-Mart.

Our last topic of concern will be future co-branding partners with SodaStream. The possibilities are endless. Outside of Coke we would think given the current state of affairs, but as they say, "time heals all wounds." Capital Ladders goes into great depths with this topic in our reports on SodaStream, and we have two very likely co-branding candidates that we see partnering with SodaStream in the future. To be clear and fare to all parties, our candidates for partnerships is based on pure analytical and anecdotal research and not based on SodaStream management's commentary. Having said that, we do know the company is currently in discussions with candidates and will be making an announcement when the time is appropriate.

So all of this great earnings, increased guidance, expansion, new products and potential partnerships is great, but when will the stock achieve a more reasonable growth stock multiple? More importantly, when will the short interest get back to a more palatable level to attract more investors? The second question could answer the first question certainly and time will tell. One thing is for sure, if you have played the stock by buying in the low $30s and selling in the $40s over the last 12 months and repeatedly, you would have done very well.

On a technical basis, the stock is "broken." At Capital Ladders we say this because the stock has been range bound for the last 12 months and during this time it has yet to hold or produce any sound technical chart that normally indicates a breakout or a breakdown. Having said this, the fundamentals have yet to do the same thing for the stock. When these two stock measures fail to guide the stock price we have to look at the composition of the stock and accept that there in lies the reason for the stock movement. So investors and traders, it may serve you well to take a look at the float, the stock ownership, the average daily volume, and the short interest before anticipating the notion of a "short squeeze" in SODA. Align these stated stock characteristics and put them into the proper context and you should be more able to understand why the stock has remained range bound for so long in spite of extreme YOY growth and fundamental execution. On the bright side, SODA finished earnings release week above $40 a share for the first time in the last 3 quarters. It's anybody guess if this means a higher base is forming which will serve to launch the stock out of its 12 month trading range once and for all during this quarter. With SODA, anything is possible, but probability will remain the most important question.

Disclosure: I am long SODA.