SodaStream International Ltd. SODA is set to report second-quarter 2015 results on Aug 5, before the market opens. Last quarter, the Israel-based manufacturer of household soda makers delivered a massive positive earnings surprise of 566.67% as better margins made up for the soft revenues.
Let’s see how things are shaping up for this announcement.
Factors to Consider
SodaStream has been witnessing soft sales in the U.S. over the past few quarters due to low demand for its products — soda/sparkling water machines and flavored syrups.
The U.S. carbonated soft drink (CSD) market is facing troubles as consumers are shifting away from traditional soda toward more natural, water-based beverages containing fewer calories.
SodaStream is re-positioning its product portfolio with more focus on health and wellness and making significant changes in its growth strategies to turn around its business. As part of its restructuring and growth plan, the company plans to launch a portfolio of natural water-enhanced flavors to boost demand for its soda machines. Also, the company is working to transform the manufacturing base and operating structure — including consolidation/closure of production facilities — to enhance efficiency.
However, these product launches are scheduled in the latter half of the year and thus will not add much to the top line in the second quarter. We do not expect much improvement in the sales trends in the to-be-reported quarter.
However, like the first quarter, operating margins should improve helped by lower advertising and promotion expenses and tight cost control. Management expects advertising costs to be lower in the first half as SodaStream is expecting higher marketing expenses in the U.S. in the second half to support the product launches.
Moreover, SodaStream anticipates significant currency headwinds in 2015 due to the weakening of many currencies against the U.S. dollar.
Earnings Whispers
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. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 37 cents.
Zacks Rank: We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Some stocks in the broader consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Dean Foods Company DF, with an Earnings ESP of +3.85% and a Zacks Rank #2.
Campbell Soup Company CPB, with an Earnings ESP of +2.38% and a Zacks Rank #2.
Kellogg Company K, with an Earnings ESP of +4.40% and a Zacks Rank #3.
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