Why SodaStream Fizzled Out?

(RTTNews) - SodaStream International Ltd. (SODA) manufactures and distributes Sparkling Water Makers, which enable consumers to easily transform ordinary tap water into sparkling water and flavored sparkling water in seconds.

The company has been reporting weak sales in the U.S. for the past few quarters, reflecting softer demand in the U.S. as consumers continue to shift away from carbonated beverages due to concerns over artificial sweeteners and obesity.

In keeping up with the changing consumer trend, SodaStream has begun the process of transforming its product lines and shifted its focus on health and wellness.

The company is now proactively preparing for its upcoming transition to new line of flavors by closely managing sales into retail in order to activate the transition with a more controlled inventory pipeline, which is likely to add some pressure in the near-term.

As expected, the company recorded non-cash pretax restructuring charges related to changes in the product portfolio, and included the write-off of fixed assets and inventory associated with discontinued sparkling water makers and flavors, during the latest fourth quarter.

SodaStream is now repositioning the brand around health and wellness led by its new tag line, Water Made Exciting, providing unique better-for-you "Water Plus" beverage products, and redirecting the marketing investment toward the consumer and away from trade and promotional activities.

The company also plans to upgrade its product offering to the new generation of beverage makers behind the new design equity and easy snap-lock functionality; Roll out Source, Play and Power.

Latest Q4 Performance

Most recently, the company reported revenues of $511.8 million for the latest fourth quarter, lower than the prior year's $562.7 million, largely due to softer demand in the U.S. during the holidays, partially as a result of the elimination of discounting and promotional activities that took place in the same period in 2013, and also reflects an adverse foreign currency exchange rate impact of $7.6 million, primarily due to the weakening of the Euro/U.S. Dollar exchange rate by 7%.

On a year-over-year basis, gas refill units increased to 17% to $6.3 million, while sparkling water maker units were down 34% to just over $1 million and flavor units decreased 38% to $6.1 million, both declines coming mainly from the U.S.

On a sell in basis, U.S. sparkling water maker units declined 72% to 192,000, flavor units declined 64% to $1.5 million and gas refills were down 3% to $1.1 million.

Looking ahead...

The company anticipates significant foreign exchange headwinds in 2015 due to a stronger U.S. dollar versus almost all of the company's other operating currencies.

Revenue is expected to be negatively impacted by about $60 million and operating income by about $23 million in 2015, compared to 2014 with a majority of the hit coming in the first half of the year.

Though the company restrained from issuing specific guidance for the fiscal year 2015, it remains confident that its growth plan encompassing brand and product repositioning will reverse recent downtrend and propel the company back on a sustained profitable growth trajectory.