- SodaStream's quarter seemed outstanding.
- There was, however, a possible fly in the ointment.
- The fly might be a one-off, but the ointment will require further monitoring.
Source: Company website.
As I was going through SodaStream's (NASDAQ:SODA) Q1 2018 earnings today, the numbers really seemed good. There was a large earnings and revenue beat. There was quite appealing revenue growth (+24.6% year on year). There was growth on consumer refills (CO2, flavors). In terms of revenues, everything seemed to be going gangbusters, with starter kits up 23.1% year on year and consumables up 27.4%. SodaStream also guided up on revenues, operating income and diluted EPS (earnings per share).
Sure, there were a few less interesting bits here and there. For instance:
- Forex effects added a full $12 million to revenues. So the 24.6% revenue growth was more like +14.1% if we strip the forex effect.
- France went from using a distributor to direct selling. This can juice up sales a bit, since they're now booked for the full price instead of at wholesale prices. The effect is not disclosed.
Anyway, overall it seemed a pretty solid report. Of course, with SodaStream trading for 26.8x 2018 earnings (after the guidance improvement), SodaStream needed everything to be perfect. That's where the fly in the ointment comes in. Not everything was picture perfect.
There was a tiny detail that detracted from the rest of the picture. In the table showing volume changes, we had this (red highlight is mine):
What this means is that SodaStream sold a lower number of Soda machines. Of course, in SodaStream's business, the machines sold are the first step in the funnel. Those machines are the thing that will then require recurring consumable purchases.
Now, this isn't immediately critical. Perhaps it was the result of a one-off effect. I'll explain why.
In the previous quarter, SodaStream starter kits saw a 25.5% increase in units, but just a 26.1% increase in revenues. In this quarter, as we saw above, units decreased 1.6%, but revenues increased 23.1%. The ASP (average selling price) therefore increased significantly from one quarter to the next (from $60.5 to $65.8). Moreover, in the previous year, the exact opposite happened (ASP went from $60.7 to $52.7)
Thus, it's possible that last year's base was favored by a lower ASP leading to higher sales. And this year's comparison was punished by an effective price increase together with anticipation of such price increase. The combination of the two could explain the large drop in shipment growth from one quarter to the next.
Still, given that for SodaStream the entire business starts with selling the soda machines, this development ends up being a possible red flag. It's a possible red flag that might not last more than one quarter, but it does introduce a valid fear into buying the stock when it's priced to near-perfection.
SodaStream's quarter looked very good. However, there was a possible fly in the ointment when it came to starter kit sales. Starter kit sales are the lifeblood of SodaStream's business. The installed base is what then consumes the refills, so you don't want to see any troubles there. Given this, the large drop in starter kit shipments is worrisome. A careful analysis of what happened with ASPs during this and the previous quarter, as well as both quarters during the previous year, does indicate there might have been a one-off effect restricting sales.
Overall, this development will require monitoring. The red flag might be enough to stoke some fears, and if it happens again next quarter, it could quickly lead to an investor exodus.
This article was written by
Portuguese independent trader and analyst. I have worked for both sell side (brokerage) and buy side (fund management) institutions. I've been investing professionally for around 30 years.
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