SodaStream International Ltd. (SODA:US), the Israeli maker of home soda machines, fell last week on speculation lackluster holiday sales will erode earnings.
Shares of Lod, Israel-based SodaStream sank 3.8 percent last week to $48.32, the worst annual debut since the company’s 2010 initial public offering. The shares touched a nine-month low on Jan. 2. The Bloomberg Israel-US Index rose 0.3 percent to $110.2 for a 0.5 percent weekly gain. Ituran Location & Control Ltd. (ITRN:US), which makes devices for locating stolen vehicles, jumped 5 percent in the week to a record.
SodaStream has declined 24 percent (SODA:US) since Oct. 29, the day before the company reported third-quarter sales that fell short of analysts’ estimates, the first miss on record. Surveys of SodaStream products among U.S. retailers from Wal-Mart Stores Inc. (WMT:US) to Costco Wholesale Corp. showed modest sales growth from the prior year during the holidays, Longbow Research LLC said.
“People are concerned that SodaStream had a mediocre holiday season here in the U.S., which is a big portion of their long-term growth story,” Philip Terpolilli, an analyst at Longbow who rates the stock neutral, said by phone from Independence, Ohio, on Jan. 2. “It offers limited upside.”
Longbow lowered its 2013 earnings estimates for SodaStream by two cents to $2.57 a share, according to a report dated Dec. 6. That compares with a $2.59 mean earnings estimate (SODA:US) of 10 analysts surveyed by Bloomberg.
SodaStream’s sales will rise 30 percent to $565.2 million in 2013, compared with a 51 percent growth in 2012, analysts projections show.
Yonah Lloyd, SodaStream’s chief corporate development and communications officer, didn’t respond to an e-mailed request for comment sent after regular business hours in Israel.
Sales in the U.S., which represent about a third of company revenue, were “very healthy” in the third quarter, Lloyd said during a Nov. 19 investor presentation. Lloyd reiterated SodaStream’s target of $1 billion in annual sales by 2016, first announced in May.
SodaStream’s sales slowdown this year is a “shorter-term blip” and is to be expected after the 51 percent growth in 2012, said Michael Kass, a New York-based portfolio manager at Baron Capital Inc., which manages $20 billion in assets, including emerging-market stocks.
“It’s a difficult comparison, but I think the category is positioned well for the next several years,” Kass said by phone Jan. 3. “I don’t think the long-term trend has been disrupted.”
SodaStream shares have also declined over the past year amid concern that Starbucks Corp. (SBUX:US) will sell a similar soda product, Nick Setyan, an analyst at Wedbush Securities LLC in Los Angeles, said by phone on Jan. 2. Starbucks is testing its own handcrafted sodas in some stores as a way to lure customers back after they get their morning cup of coffee, he said.
SodaStream’s holiday sales were strong at Wal-Mart and Bed Bath and Beyond Inc. stores because the retailers offered deeply discounted prices, according to Terpolilli. Excluding such promotions, demand was “up only modestly on a year over year basis,” he said.
The promotional sales are concerning because SodaStream depends not just on the initial sale of the soda machine, but benefits from the so-called razor-blade model of retailing, where profits rely on customers repeatedly buying complementary products such as carbonation cannisters and flavors. A cheaper price may imply an impulse buy, rather than a loyal customer who will continue to use the machine, Terpolilli said.
The most important metric that SodaStream executives look at is customers exchanging carbon dioxide cannisters, because it shows that people are using the product, Lloyd said during his presentation in November.
The Bloomberg Israel-US Index gained 0.4 percent to 110.2 last week, which was shortened by the New Year’s Day holiday in the U.S. That compares with a 0.8 percent drop for Israel’s benchmark TA-25 Index. (TA-25) The Tel Aviv gauge advanced 0.1 percent at the close in Israel.
Ituran, based in Azur, Israel, was the best performer on the Bloomberg-Israel index last week, rising to a record $22.06 per share. The Tel Aviv shares advanced 1.2 percent to 77.59 shekels, or $22.13, today.
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