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Will Higher Revenues Support SodaStream (SODA) Q4 Earnings?


SodaStream International Ltd. SODA is slated to release fourth-quarter 2017 numbers on Feb 14, before market opens.

This Israel-based manufacturer of household soda witnessed a positive earnings surprise of 17.57% last quarter, marking an average beat of 61.44% in the last four quarters.

Let’s take a look at how things are shaping up for Q4 —

SodaStream banks heavily on the growing demand for its sparkling water. The company’s cost-effective beverage carbonation systems help consumers transform ordinary tap water into soft drinks and sparkling water, providing a healthier alternative to carbonated sugary drinks. Owing to a shift in consumer preference toward healthier sparkling water, SodaStream repositioned itself in the United States to capitalize on this. In fact, in the last reported quarter, the company recorded revenue growth in all of its geographical operating locations, backed by an increase in sparkling water maker units.

In the first nine months of 2017, sparkling water maker starter kits increased 23.8%, while its gas refill units surged 10.3% year over year. Particularly, the company remains on track in building a global sparkling water franchise as evidenced by the increase in gas refill units to an all-time high of 8.4 million in the third quarter. We expect this trend to continue in the to-be-reported quarter as well. Meanwhile, the Zacks Consensus Estimate for fourth-quarter 2017 revenues is pegged at $152.1 million, reflecting 15.4% year-over-year growth.

Apart from robust sales figure, SodaStream has efficient cost-effective strategies that help the company enhance its operating platform. Additionally, advanced manufacturing capabilities enable the company to leverage its cost structure on higher production volumes.

In fact, SodaStream’s operating expenses in the third quarter declined 170 basis points (bps) from the year-ago level. The company had earlier highlighted that it expects lower costs and higher revenues for the remaining of 2017, which in turn will boost the company’s bottom line. In the first nine months of 2017, the gross margin expanded 200 bps and adjusted EBITDA was up 53% year over year. Continued production optimization, higher production volume and introduction of higher margin sparkling water makers led to the upside.

The consensus estimate for fourth-quarter earnings is pegged at 78 cents, reflecting 9.9% year-over-year improvement.

However, owing to SodaStream’s extensive international presence, negative currency translation poses a threat. Again, decelerating sales growth in The Americas segment (approximately 24% of revenues) is also alarming (up 12% in Q1, 8% in Q2 and 1% in Q3). Nonetheless, a strong product pipeline and cost-effective strategies are expected to drive growth.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively show that SodaStream is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: SodaStream has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 78 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: SodaStream has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

SodaStream International Ltd. Price and EPS Surprise

SodaStream International Ltd. Price and EPS Surprise | SodaStream International Ltd. Quote

Stocks to Consider

Here are some companies in the broader Consumer Discretionary sector you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Choice Hotels International, Inc. CHH has an Earnings ESP of +1.84% and a Zacks Rank #1. The company is scheduled to report quarterly results on Feb 20. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMC Entertainment Holdings, Inc. AMC has an Earnings ESP of +4.65% and a Zacks Rank #3. It is slated to release quarterly numbers on Mar 1.

Boyd Gaming Corporation BYD, with an Earnings ESP of +1.68% and a Zacks Rank #3, is scheduled to report quarterly results on Feb 20.

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