SodaStream International Ltd. SODA is set to report third-quarter 2015 results on Nov 4, before the market opens. Last quarter, the Israel-based manufacturer of household soda makers delivered a negative earnings surprise of 54.05%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
SodaStream has been recording soft sales in the U.S. over the past few quarters due to lower 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 thus pursuing a global restructuring and growth plan. The company is repositioning itself as a water brand under its health and wellness strategy and making significant changes in its growth initiatives to turn around the business.
As part of the plan, the company has begun to roll out a range of natural water-enhanced flavors at its retailers. The company is also testing a marketing campaign, “Sparkling Waters – Made by You”.
SodaStream is also working to transform its manufacturing base and operating structure — including consolidation/closure of production facilities — to create a more efficient organization.
At the second-quarter conference call, management stated that it was expecting sales decline rates to moderate in the second half from the first, especially in the fourth quarter. Sales growth is likely to turn positive in the fourth quarter. We can safely assume that though the third-quarter sales growth might not be positive, it should still be better than the declines witnessed in the first half gaining from the product launches and increased marketing support.
However, gross margins are expected to be down slightly in the third quarter than the comparable year-ago period due to unfavorable product mix (higher concentration of sparkling water makers and flavors). Advertising costs are expected increase to support product launches which might put third-quarter profits under pressure.
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 ESPand 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 21 cents.
Zacks Rank: SodaStream’sZacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.
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 +4.00% and a Zacks Rank #3.
Campbell Soup Company CPB, with an Earnings ESP of +2.63% and a Zacks Rank #3.
Monster Beverage Corporation MNST, with an Earnings ESP of +1.24% and a Zacks Rank #3.
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