On Oct 10, Zacks Investment Research downgraded SodaStream International Ltd. (SODA) to a Zacks Rank #5 (Strong Sell) following lackluster third-quarter 2014 preliminary results reported on Oct 7.
Why the Downgrade?
The Israel-based manufacturer of household soda machines expects third-quarter revenues of around $125 million, which lagged Zacks Consensus estimate of $147 million by about 15%. The expected revenue also reflects a year-over-year decline of 13.6% and a sequential fall of 11.5%. Meanwhile, operating income is expected at around $8.5 million, again indicating a decline of 48.2% year over year.
The discouraging third-quarter preliminary numbers can be attributed to the low soda and flavor demand in the U.S. Management claims that though the company has quite a number of loyal customers, it has failed to gain new customers for its home carbonation systems during the quarter.
SodaStream has been facing soft sales in U.S. over the past few quarters, despite delivering solid international sales. In fact, during the second quarter of 2014, revenues decreased 14% in the Americas due to elevated inventory levels at retail customers on weak holiday season sales in December. Also, efforts to reinvigorate sales have failed miserably. Even the launch of hotspots in about 1,500 Wal-Mart Stores Inc. (WMT) outlets during the second quarter did not have the desired effect on demand.
Management believes that it needs to make significant changes in growth strategies. The company is already shifting toward health and wellness brands. However, it is yet to be seen if the company will be able to successfully recover demand for its products in the near future.
Most of the estimates moved downward over the past seven days, following the release of the company’s weak third-quarter 2014 preliminary results.
The Zacks Consensus Estimate for third-quarter 2014 declined 18.2% to 54 cents per share while that for the fourth quarter contracted 11.8% to 60 cents over the same time frame. The Zacks Consensus Estimate for 2014 declined 10.8% to $1.66 per share and the same for 2015 deteriorated 11.1% to $1.84 per share.
Better-ranked stocks in the consumer goods industry include Prestige Brands Holdings, Inc. (PBH) and Spectrum Brands Holdings, Inc. (SPB). Both the companies carry a Zacks Rank #2 (Buy).
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